US president Joe Biden’s planned US$1.9trn fiscal support package for the American economy may provide a metaphorical shot in the arm for at least some emerging markets, partially offsetting the negative economic effects caused by the delayed rollout of actual coronavirus inoculations. Udith assesses the conflicting forces affecting emerging economies.
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Gavekal Research
January 21, 2021
Video: The Good And Bad News For Emerging Markets
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Gavekal Research
January 21, 2021
The Turn In Asian Inflation
Over the last year, a collapse in oil and commodity prices slashed inflation in Southeast Asia and buoyed real interest rates. As a result, regional central banks were able to cut policy rates and mitigate the impact of massive Covid disruption. However, this disinflationary tailwind is set to abruptly reverse in the coming months as inflationary pressure inevitably builds up.
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Gavekal Research
January 20, 2021
Towards Stealth Debt Cancellation
The grand panjandrums of the European Central Bank meet Thursday amid growing calls for them to cancel the vast sums of eurozone member governments’ debt they have bought over the last year. There is zero chance they will formally agree to any debt cancellation, but the ECB may do so by stealth.
The US economy and markets
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Gavekal Research
January 15, 2021
Biden’s Spending Plan
In a speech late Thursday, US President-Elect Joe Biden called on Congress to approve an additional US$1.9trn of federal spending to tackle the Covid-19 pandemic and support the US economy. If approved, Biden’s package will bring US government stimulus spending since the start of the pandemic to more than US$5trn.
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Gavekal Research
January 11, 2021
Bitcoin, Gold Or Fiat?
Governments and central banks are giving users of fiat money reason to consider alternative mediums of exchange and stores of value. And it seems entirely possible that Bitcoin can rally even harder than it already has. But are there the makings of a good money? Because if the answer is “no”, then bitcoin is running on fumes.
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Gavekal Research
January 11, 2021
The Road Ahead For US Yields
Friday’s US labor market figures showing a surprise 140,000 contraction in December’s non-farm payrolls emphasized just how tough the winter months are going to be for the world’s largest economy as coronavirus infection rates and resulting hospitalizations continue to accelerate.
Covid-19
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Gavekal Research
January 8, 2021
Strategy Monthly: Darkness Before Dawn? The Covid Vaccine Outlook
As a new wave of Covid infections grips major economies, and social restrictions return, the hopes for a return to pre-pandemic normal rest on the rollout of vaccines. With vaccine production ramping up, most developed economies could reach herd immunity by late in 2021.
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Gavekal Research
November 17, 2020
The Brake On US Growth
Hopes for effective coronavirus vaccination programs in 2021 propelled both the S&P 500 and the Russell 2000 small cap index to record high, but on the ground in the US, accelerating infections and rising hospitalization rates prompted more state and local governments to order additional restrictions in a bid to slow the spread of the virus.
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Gavekal Research
November 6, 2020
Let’s Build A Second Maginot Line!
With the coronavirus endemic in Europe, the new anti-Covid lockdowns being imposed by governments across the region, including in France, Germany and the UK, make about as much sense as a second, smaller, Maginot line would have done back in 1943 when the Germans were firmly entrenched in France.
Oil
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Gavekal Research
October 14, 2020
The Three Key Prices: Oil
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.
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Gavekal Research
July 14, 2020
Oil’s Unintended Consequences
On Wednesday, ministers from the Opec+ oil exporting cartel will meet to decide whether to begin scaling back their production cuts, but with the prospect of a renewed increase in infection rates, it's safe to say they will adopt a cautious approach.
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Gavekal Research
April 23, 2020
Whale Watching In The Gulf
Gavekal’s dynamite fishing analogy maintains that the biggest impact of a market shock only shows up after a delay, much like the effects of an underwater explosion. First the small fry float to the top, then the mid-size fish. Only much later does the dead whale break surface.
Global Strategy
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Gavekal Research
January 20, 2021
The Logos, Idiotes And Demagogues
Charles revisits the idea of the Greek "logos", "idiotes", demagogues and citizens, and how the Greeks believed that those who controlled the logos—the language used to describe the world—ipso facto controlled the political system. Problems arise when a new, competing logos started to emerge.
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Gavekal Research
January 14, 2021
A Debate On The US Dollar
In investment, few things can prove as dangerous as a “safe bet” in the foreign exchange market. So, when 2021 began with a firm consensus that the US dollar was destined to fall, only for the DXY index to rally 1% over the last week, people quickly began to question the prevailing consensus.
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Gavekal Research
January 7, 2021
Investors Should Welcome An Undivided US Government
With undivided Democratic Party control of the White House and both chambers of the US Congress now confirmed, the Biden administration will have free rein to pursue stimulus spending. Yet the balance of power in the Senate means tax hikes are off the table for at least two years. Anatole argues this is highly bullish for US equities.
Europe's economy
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Gavekal Research
January 20, 2021
Towards Stealth Debt Cancellation
The grand panjandrums of the European Central Bank meet Thursday amid growing calls for them to cancel the vast sums of eurozone member governments’ debt they have bought over the last year. There is zero chance they will formally agree to any debt cancellation, but the ECB may do so by stealth.
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Gavekal Research
January 18, 2021
Europe’s New Political Cycle
After a six-month respite, European political risk is back on the radar screen. Last Wednesday, ministers from the Italia Viva of former prime minister Matteo Renzi walked out of Italy’s cabinet in a dispute over how EU Covid recovery funds should be spent, leaving the coalition government of prime minister Giuseppe Conte scrabbling to survive.
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Gavekal Research
January 6, 2021
Europe’s New Lockdowns
On Tuesday, Germany followed the United Kingdom by imposing fresh restrictions on activity and movement that in effect amount to a new lockdown comparable—and in some areas even stricter—than the anti-coronavirus shutdown imposed over the second quarter of last year.
China Tech
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Gavekal Dragonomics
January 5, 2021
Decoding The Assault On Alibaba
The antitrust investigation into Alibaba, following close on the heels of the cancellation of the Ant IPO, has raised big questions about the changing political environment for Chinese internet companies. In this piece, Andrew considers the best- and worst-case scenarios, and concludes that at a minimum, growth prospects have dimmed.
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Gavekal Dragonomics
November 30, 2020
Huawei's Slow Strangulation
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.
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Gavekal Dragonomics
November 12, 2020
The Internet Is No Longer Exempt
Recent major regulatory actions have sent a strong message to Chinese internet companies: you’re not special anymore. In this report, Andrew, Dan and Ernan explain why anti-competitive practices, prudential risk and the pandemic are now prompting policymakers to regulate online firms on the same basis as their offline counterparts.
China's economic cycle
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Gavekal Dragonomics
October 20, 2020
The World’s Best Manufacturer
The strong performance of China’s manufacturing sector reflects both the country’s success in getting the virus under control as well as its long-established manufacturing strengths. In this report, Dan explains why multinationals are reluctant to leave a country they’ve built up to be the world’s best manufacturer.
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Gavekal Dragonomics
October 19, 2020
A Return To Normality
China’s recovery story continues apace, with strong showings in exports, retail sales and manufacturing counteracting a softening in the property sector. In this Quick Take, the Dragonomics team explains why Beijing is therefore unlikely to conduct further policy easing or support major infrastructure investment for the rest of the year.
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Gavekal Dragonomics
October 15, 2020
Funding The Future
China has seen a surge in funding to “strategic” high-tech industries following US attempts to strangle Chinese technological development. What’s surprising, Thomas writes, is that this funding is coming not from public subsidies but rather from capital markets, with the firms leveraging government support to raise equity and secure financing.
Hong Kong
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Gavekal Dragonomics
January 19, 2021
Small Borrowers Still Struggling
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.
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Gavekal Dragonomics
January 18, 2021
A Two-Speed Recovery
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.
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Gavekal Dragonomics
January 14, 2021
For Exports, It’s Stronger For Longer
China’s exports have been boosted by two side effects of the Covid-19 pandemic: a shift of consumer spending to goods from services, and the failure of manufacturing in other countries to get back to full capacity. How long can those advantages last? Thomas argues they will continue to boost exports through the first half of 2021.
India
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Gavekal Research
January 19, 2021
Flows Will Still Favor Indian Equities
Indian cows tend to be scrawny beasts, but India’s equity bulls have rarely looked fatter. Stocks scaled record highs last week after a 10-week binge on easy foreign money.
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Gavekal Research
December 9, 2020
India Macro Update: Long Road To Recovery
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.
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Gavekal Research
November 20, 2020
The Scars Beneath India’s Cheer
As India celebrated Diwali this month, there was some reason for cheer on the economic front. After a deep downturn, demand has picked up, the economy is primed to return to growth in the fourth quarter, and the manufacturing sector is firing on all cylinders. Nevertheless, the scars from this year’s contraction will take a long time to heal.
Video
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Gavekal Research
January 14, 2021
Video: China's Post-Pandemic Roadmap
A year after Covid-19 was first revealed in China, the country has emerged as one of the key economic winners of the global pandemic. In this video interview, Arthur assesses how it did this and looks at the new priorities for Chinese industrial development in a world that has become less open and more suspicious of Chinese intentions.
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Gavekal Research
December 4, 2020
Video: The Treasury’s Liquidity Programs And Markets
US Treasury Secretary Steven Mnuchin has come under fire for failing to extend a number of the Treasury’s liquidity support programs into 2021.
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Gavekal Research
November 25, 2020
Video: What Prospect US Fiscal Support?
Investors in the US are displaying signs of euphoria as they anticipate the end of the pandemic due to the roll-out of vaccines. But is this shortsighted given the lack of agreement over fiscal stimulus?
Brexit and the UK economy
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Gavekal Research
December 15, 2020
Deal Or No Deal: Should We Really Care?
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.
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Gavekal Research
October 22, 2020
Crisis Averted, Hard Times Ahead
This week, Boris Johnson got what he needed politically: a bromide from Brussels that will allow him to camouflage the compromises he must make to secure a trade deal with the EU before the year’s end. But it will be a minimalist deal that will leave the UK’s service sector out in the cold, increasingly shut out of the EU’s markets.
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Gavekal Research
September 30, 2020
The UK’s Savings Problem
The British government's new job support scheme to take effect next month offers much less generous subsidies, and job losses are inevitable. Heightened job insecurity will mean increased precautionary savings, compounding the downturn in consumption.
Emerging markets
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Gavekal Research
January 13, 2021
The Paradox Propelling Asian Currencies
This year, the world is likely to see a sharp bifurcation in economic performance. In developed economies, mass vaccination programs enable a return to economic normality, while in emerging markets, vaccine supply and distribution problems will slow recovery.
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Gavekal Research
December 16, 2020
The Lure Of Korea In A Rotation
Hopes for a return to normality as Covid vaccines get rolled out have helped fuel a global rotation from growth to value equities, and from previous “Covid winners” to “Covid losers”. Due to its better pandemic management, clear policy headroom and exposure to the electronics sector, Asia has generally been a Covid winner.
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Gavekal Research
December 2, 2020
Asian Bonds Remain Attractive
Two weeks ago, the central banks of Indonesia and the Philippines each lowered their policy rates by 25bp, making their first rate cuts since the summer. Although the moves came as a surprise to the markets, they should not have done.
Deep Dives
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Gavekal Research
January 20, 2021
Webinar: Europe’s Cruel Winter
As the pandemic intensifies across Europe growth prospects in the first quarter are dimming, but investors are focused on a potential economic reopening by the spring.
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Gavekal Research
January 8, 2021
Strategy Monthly: Darkness Before Dawn? The Covid Vaccine Outlook
As a new wave of Covid infections grips major economies, and social restrictions return, the hopes for a return to pre-pandemic normal rest on the rollout of vaccines. With vaccine production ramping up, most developed economies could reach herd immunity by late in 2021.
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Gavekal Research
December 9, 2020
India Macro Update: Long Road To Recovery
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.
Chinese property
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Gavekal Dragonomics
January 13, 2021
New Ceilings For Property Financing
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.
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Gavekal Dragonomics
December 8, 2020
A New Reality For Commercial Property
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.
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Gavekal Dragonomics
November 10, 2020
Housing & Construction Review 2020
China’s property sector led the rebound from Covid-19 lockdown, but how long can the new boom last? In her annual chartbook, Rosealea explains the outlook for 2021 after a very volatile 2020. Housing policy has turned tighter after signs of overheating, which points to sales flattening and construction activity declining next year.
From the archives: oldies but goodies
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Gavekal Research
November 23, 2012
Deficit Deniers Of The World Unite
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.
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Gavekal Research
July 20, 2011
Are We Entering Into Revolutionary Times?
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.
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Gavekal Research
February 28, 2011
The High Cost Of Free Money
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’.