Gavekal Research
April 9, 2021
At first glance, with the unemployment rate down from a peak of 8.7% last September, it looks as if the degree of slack in the eurozone’s labor market may be small by historical standards. However, a look at the level of employment (including employees and self-employed) shows that employment is down by 3.1mn compared with the pre-pandemic baseline.
Gavekal Research
April 9, 2021
For a president with a scant majority of one in the US Senate, Joe Biden has an extremely ambitious legislative agenda, starting with a US$2trn infrastructure spending and tax bill. Yanmei examines the procedural shortcuts and political roadblocks that may either smooth or obstruct Biden’s proposed legislation to assess how much of the program is actually likely to make it into US law.
Gavekal Research
April 9, 2021
In the long years between the 2008-09 financial crash and the 2020 Covid crisis the US stock market massively outperformed equities in the rest of the world. In recent quarters, however, the US market has lost its edge. Yesterday, Louis, KX and Udith weighed the merits of ex-US equities versus US stocks in a post-pandemic world.
Gavekal Research
March 5, 2021
Jerome Powell tried to calm the bond market yesterday by repeating that it’s likely to be a while before policy normalization begins. Growth and inflation indicators are up, but the Fed expects much of this to be “transitory”. In short, Powell remains a steadfast dove. So why are bond yields, real and nominal, still ticking higher?
Gavekal Research
March 4, 2021
As yields continue to test new highs, Jay Powell is set to deliver a speech today reasserting the Federal Reserve’s view that inflation can push above its 2% target due to base effects and pent-up demand without monetary tightening being needed.
Gavekal Research
February 24, 2021
US bond yields are rising as the growth outlook is boosted by the vaccine roll-out and sustained monetary and fiscal stimulus. US value stocks and the sectors hit by Covid restrictions are ripping. Growth investors, in contrast, are spooked about this situation, as much of their worth comes from earnings discounted far into the future.
Gavekal Research
February 11, 2021
Despite volumes of new information and the lightning creation of vaccines promising a path out of the pandemic, uncertainty remains. Almost daily we are bombarded with a mix of good news (the vaccines work really well!) and bad (new mutations resist vaccines!) that make it hard to know whether we should rejoice or despair.
Gavekal Research
February 1, 2021
It is looking likely that most countries will miss their Covid-19 vaccination targets for 2021. This creates a risk of slower than expected economic growth, especially in Europe which take half a year to emerge from its double-dip recession.
Gavekal Research
January 26, 2021
The race to vaccinate the world in the wake of the Covid-19 pandemic will be one of the most complex projects ever attempted. Most developed economies aim to fully vaccinate their adult population by year’s end. Dan outlines the manufacturing and logistical challenges involved the vaccine rollout
Gavekal Research
March 2, 2021
The past year has seen two important developments in the oil industry. Firstly, US oil production has rolled over by between -2mn and -2.5mn bpd and there are reasons to think this situation lasts until next year. Secondly, oil prices, which were in a clear bear market between late 2018 and early 2020 are now in a bull market.
Gavekal Research
February 15, 2021
Devotees of game theory are set to enjoy a rare drama playing out in front of their eyes in the oil market over the coming months. Since April last year the price of Brent crude has more than tripled.
Gavekal Research
October 14, 2020
In financial markets, there are three prices matter above all: the price of the US dollar, the yield on 10-year US treasuries, and the price of oil. Get the direction of these right, and the other pieces of the investment puzzle fall into place.
Gavekal Research
March 10, 2021
In June 2019, I argued that big shifts in the US economy and financial markets largely result from changes in the relative price of energy. If oil prices are rising faster than nominal GDP, this points to energy shortages and more of the economy’s value-added going as the “miners’ rent”.
Gavekal Research
March 9, 2021
A friend recently sent me the following quote from the Barrow Hanley small-cap manager, Jim McClure: “Should an investment narrative become particularly disputed, the best course of action is to identify the camp that is more emotional, and bet heavily against them”.
Gavekal Research
March 1, 2021
There are two kinds of bubbles: bubbles in productive assets like railways, and broadband lines, and bubbles in scarcity assets like tulips and gold. In turn, these bubbles can be funded through equity, or by debt.
Gavekal Research
March 3, 2021
Later this year, eurozone consumer price inflation should hit its highest level in more than a decade. We found out on Tuesday that February’s consumer prices rose by 0.9% year-on-year, and more price hikes are in the works.
Gavekal Research
February 23, 2021
“We are not here to close spreads,” proclaimed European Central Bank president Christine Lagarde last March. “This is not the function or the mission of the ECB.” After the market took her at her word, Lagarde hastily back-tracked, and the ECB duly spent the following months doing exactly what Lagarde had said it would not.
Gavekal Research
February 19, 2021
Newly installed as Italy’s prime minister at the head of a broad coalition, on Wednesday Mario Draghi outlined an ambitious agenda of structural reforms. Notably, the former European Central Bank chief wants to oversee a root-and-branch overhaul of Italy’s tax system, while investing in the education system and streamlining public administration.
Gavekal Research
March 2, 2021
Taiwan’s position at the core of the global semiconductor industry has never looked more secure: it is now the undisputed leader in advanced chip manufacturing. But does that success increase the risk of military aggression from China?
Gavekal Dragonomics
November 30, 2020
The US government’s August decision to deny Huawei access to every advanced chip in the world was a death sentence for the firm, but its execution has not been swift. In this report, Dan outlines the uneven effects of the decision on Huawei’s different business lines and explains why any solution to the firm’s troubles will have to be political.
Gavekal Dragonomics
November 13, 2020
President Trump signed an executive order on Thursday barring US investments into a list of 31 Chinese firms, 13 of which are publicly listed. In this Quick Take, Dan and Thomas outline what obstacles the order faces before implementation, what impact it would have for investors and what the move means for Chinese equities both on- and offshore.
Gavekal Dragonomics
March 10, 2021
2021 is set to be a strong year for capital spending by Chinese companies. In this report, Thomas explains why solid returns on assets across the industrial sector and low borrowing costs are creating incentives for firms to invest in new capacity. This should allow policymakers to cut back on spending without tanking overall investment.
Gavekal Research
March 8, 2021
For four decades, every five-year plan has included a target for average GDP growth. The latest plan, presented last Friday, did not. This points to China's leadership having a more complex view of development goals argues Andrew.
Gavekal Dragonomics
March 5, 2021
Officially, the normalization of China’s fiscal policy will be moderate in 2021: the government budget will narrow to 3.2% of GDP from 3.7%. But public-works spending is China’s true fiscal policy, and tighter financing does not bode well. Infrastructure investment is likely headed for a fourth year of negligible growth, and could even decline.
Gavekal Research
January 27, 2021
Even though the Hang Seng index fell -2.55% on Tuesday, Hong Kong is still the world’s best performing major stock market year-to-date. In Hong Kong’s media the run-up is attributed to waves of mainland Chinese money flowing into the city’s equities.
Gavekal Dragonomics
January 19, 2021
Even after a dramatic economic recovery, many of China’s smallest businesses are still struggling. In this piece, Xiaoxi shows how the government’s financial-support measures did little to improve small businesses’ access to financing, which is already tightening. But the policies are helping banks avoid a potential spike in bad loans.
Gavekal Dragonomics
January 18, 2021
China’s Q4 GDP growth surpassed pre-Covid rates, with housing and manufacturing leading while services lagged and infrastructure investment slowed. In early 2021, this divergence is likely to continue as consumers stay home for the Chinese New Year and poor credit growth drags on infrastructure investment.
Gavekal Research
March 8, 2021
India is enjoying a V-shaped recovery and there are hopes that high fiscal spending and favorable base effects can push GDP growth above 10% in the coming fiscal year. The problem is that the private sector remains weak after a savage Covid-19 experience.
Gavekal Research
March 3, 2021
Industrial policy is back in vogue, especially in India. Prime Minister Narendra Modi’s government will spend US$27bn on subsidizing manufacturing, as it seeks to forge a “Self-Reliant India.” Given India’s unhappy history of chasing self-sufficiency, this raises concerns. Yet “self-reliance” does not necessarily mean protectionism, argues Tom.
Gavekal Research
February 2, 2021
Indian equities have risen 7.6% in the last two days, after the government of prime minister Narendra Modi threw fiscal caution to the winds in the 2021-22 budget it presented on Monday. India will attempt to spend its way out of economic crisis, with a five-year plan for deficit-fueled growth.
Gavekal Research
March 9, 2021
US tech stocks have been hit hard, as attention focuses on the underlying quality of themes like the migration to electric vehicles.
Gavekal Research
March 4, 2021
Rising treasury yields are rarely a good thing for emerging markets, as this implies tighter financing conditions. The good news of sorts is that Asia's external position is strong due to buoyant exports, yet domestic demand has been constrained by the pandemic and a slow vaccine rollout.
Gavekal Research
February 25, 2021
Will Denyer examines the forces behind the eye-watering run-up and eye-popping volatility of bitcoin, and delves behind the near-term moves in crypto-currency markets to ask whether bitcoin and its ilk will ever gain traction as a unit of account, means of exchange or store of value.
Gavekal Research
February 22, 2021
The British pound has been the strongest major currency so far this year, contrary to Anatole’s expectations at the end of 2020. In this piece he outlines three reasons for sterling’s outperformance, but maintains that in the long term the pound will be forced lower.
Gavekal Research
February 2, 2021
The fiasco of Europe’s vaccination plan and Brussels’ retreat from its standoff with the UK and AstraZeneca have has caused the euro to weaken.
Gavekal Research
December 15, 2020
As the fifth season of the Brexit soap opera lumbers towards a predictably messy climax, the prospect of a sixth season will probably be enough to discourage international investors from considering British assets and sterling for another year or more. And rightly so.
Gavekal Research
February 25, 2021
As 10-year US treasury yields have pushed higher, investors have begun to reassess their enthusiasm for emerging market assets. Historically, rising US yields has seldom been accompanied by emerging market outperformance.
Gavekal Research
February 18, 2021
Since the global recovery trade got going at the beginning of November, Japanese equities have performed respectably, returning some 24% in US dollar terms. But they have not outperformed. This is disappointing.
Gavekal Research
February 15, 2021
Across Europe and the US, car plants are getting shuttered because of a shortage of microchips from Asia. This storm is centered on Taiwan, which for decades has been an unsung contract supplier of electronics and chemicals.
Gavekal Research
February 5, 2021
Charles has sought to codify his many investment rules into a rigorous portfolio construction framework, which includes identifying periods when returns stop being normally distributed and move into the "tails". Right now markets could be going through a phase change, and in this webinar, he explained why.
Gavekal Research
February 1, 2021
For the eurozone, it seems everything went wrong at the end of 2020—and things have only got worse at the beginning of 2021. Unfortunately, hopes for recovery are pinned on a vaccination program which has been late to start, slow to gather speed, and beset by problems.
Gavekal Research
December 9, 2020
India’s economy is starting to recover through a process that will be slow, painful and uneven. Growth may resume this quarter, but the economy is still on course to shrink by around -10% in the current fiscal year.
Gavekal Dragonomics
February 10, 2021
Housing sales growth is holding up well despite financial tightening and hawkish policymaker rhetoric. In this report, Rosealea explains why regulators are pressuring developers to cut prices, while increased household savings means more families can take advantage of these discounts. 2021 will therefore likely be a strong year for housing sales.
Gavekal Dragonomics
January 13, 2021
China’s policymakers are expanding their restrictions on bank financing of the property sector, imposing limits on mortgage lending in addition to curbs on borrowing by developers. In this report, Rosealea explains why the new regulations do not shift her expectations of flat property sales and a modest decline in construction activity in 2021.
Gavekal Dragonomics
December 8, 2020
Vacancy rates for office and retail space are picking up sharply this year despite a broad return to normality in China. In this report, Rosealea argues that Covid-19 accelerated an ongoing shift towards at-home work and entertainment. Developers must now grapple with the new reality that demand is unlikely to ever return to pre-Covid levels.
Gavekal Research
November 23, 2012
In our politically correct age the pressure to bow down before certain popularly accepted and apparently proven “truths” can be overwhelming. In the aftermath of the US elections, two such nostrums are unnecessarily vexing investors—the urgency of deficit reduction and fear of higher taxes.
Gavekal Research
July 20, 2011
In A Study of History, Toynbee explains that the role of a society’s elite is to rise to the challenges of the times, and find solutions fitting to those times, even if this involves a radical break with the past.
Gavekal Research
February 28, 2011
Perhaps the most famous economic law is the one that there is no such thing as a free lunch. By keeping US short rates at abnormally low levels beyond the financial crisis and as growth bounces back beyond the dreams of the wildest optimists, the Fed increasingly seems to be trying to ‘feed the US economy for nothing’.