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E.g., 13-04-2021
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    Gavekal Research

    The Ant And The Grasshoppers

    In the last few days, Chinese policymakers have stepped up the campaign to rein in their domestic tech giants, slapping Alibaba with fines of US$2.75bn and forcing the restructuring of Alibaba spin-off Ant Financial. Their action is in stark contrast to the inaction of regulators in western countries. But this is hardly the only contrast between China and the west.

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    Gavekal Dragonomics

    Curbing Mortgage Enthusiasm

    China’s regulators are strengthening their curbs on the property market as its post-pandemic exuberance continues. In this piece, Xiaoxi and Rosealea explain the central bank’s latest moves to curb disguised mortgage lending and cap overall loan growth. The main effect of these controls will be to slow lending to households and cool housing prices.

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    Gavekal Research

    A Case Study: US Long Bonds

    With recent moves at the long end of the US treasury curve causing consternation among investors everywhere, Charles dusts off his decision rules for US long bonds to see what they are telling us about the present state of the market and concludes that it is not yet time to lengthen portfolio duration.

    2
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    Gavekal Research

    Living In A Stock Picker’s Market

    When only one major factor affects equities, correlations rise. At such points, the name of the game is not to pick the best stocks, but to get the ebb and flow of that key factor right. At other times, multiple factors are in play and these affect different stocks differently; in such periods, picking winners is vital. For most of last year, the US market was macro-dominated as the Covid-induced economic collapse caused equity correlations to...

    2
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    Gavekal Research

    Webinar: Global Investment Roundtable, April 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.

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    Gavekal Research

    The Eurozone’s Sub-Surface Slack

    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.

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    Gavekal Research

    Video: Procedural Shortcuts And Political Roadblocks

    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.

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    Gavekal Dragonomics

    The Fall And Rise Of Bond Inflows

    Foreign investors’ holdings of Chinese onshore bonds declined by RMB9bn in March, after rising RMB89.5bn in February. In this Quick Take, Wei explains how narrowing yield spreads and the decline of the renminbi against the dollar led to this sharp reversal, and what comes next for Chinese bond inflows.

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    Gavekal Research

    Living With The Next Covid Wave

    Global markets are looking ahead to a post-pandemic world, but Covid-19 is still very much with us. Globally, new infection rates have risen sharply since late February, reversing their earlier decline. In the last few weeks, the US has experienced an alarming uptick in infections. The European Union is struggling to contain its latest Covid wave, which in several major countries compares with November’s for severity. And across the developing...

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    Gavekal Research

    When Do We Begin To Worry About Cost Pressures?

    For the last 13 months or so, ever since the Covid pandemic started to grip, the broad US equity market has been driven above all by fears and hopes for top-line revenue growth. Last spring, as investors anticipated a collapse in revenues, the market collapsed. Policy support halted the slide, and over recent months, as investors have looked forward to the end of the pandemic and a rebound in revenues, the broad market has scaled new highs.

    1
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    Gavekal Dragonomics

    The Taiwan Risk

    With the hardening of the US-China strategic rivalry and technology’s central role in that rivalry, the possibility of a war over Taiwan is one which must be considered. In this report, Arthur explains the importance of the island to both countries and concludes that while the risk of war remains low, it is likely to rise in the next several years.

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    Gavekal Dragonomics

    The Digital Renminbi Steps Out

    The People’s Bank of China is getting closer to rolling out its digital currency, with ever-broader and more public trials of the technology. The focus has been mostly on domestic uses and security issues—but there is more to come. In this piece, Xiaoxi explains what the PBOC is doing to prepare the digital renminbi for use in international trade.

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    Gavekal Research

    Who’s Afraid Of The Big Bond Wolf?

    For the past two months, financial analysts all over the world have been obsessed by two closely related questions: (i) How much further will US bond yields rise, and how fast? (ii) Will rising bond yields kill the bull markets in global equities and other risk assets?

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    Gavekal Dragonomics

    A Difficult Decoupling For Australian Iron Ore

    Chinese iron ore imports grew 9.5% in 2020 to 1.17bn tons despite rising tensions with Australia, China’s largest supplier. Top leaders are calling for greater supply-chain security and reduced dependence on Australian materials, but Rosealea explains that this is easier said than done given China’s immense appetite for the commodity.

    1
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    Gavekal Research

    Webinar: The Macro And Market Implications Of Europe’s Pandemic Response Shambles

    As the European Union’s vaccination program stumbles from one misstep to another, investors are being forced to put back their expectations for European economic recovery, while a procurement scandal in Germany raises the probability that the pandemic will have a long-term effect on the EU’s political landscape. Anatole, Cedric and Nick examined the near-term market impact and long-term economic policy implications.

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    Gavekal Research

    Strategy Monthly: The Case For Ex-US Equities

    The US trade deficit cycle suggests the world is heading towards a protracted period of US dollar depreciation. With valuations outside the US relatively attractive, and deglobalization meaning ex-US equities will offer greater diversification benefits in future, investors should consider increasing their exposure to ex-US equities.

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    Gavekal Research

    The Costs Of Biden’s Spending Plan

    On Wednesday, Joe Biden unveiled an ambitious US$2trn program of public infrastructure investment, to be funded by corporate tax hikes. In a nutshell, the plan is a proposal to transfer wealth from the broad US market to sectors favored by the government. The sectors that benefit from this largesse stand to enjoy a multi-year boom, with the cost to be borne by the rest of the market. However, the extent of this cost should not be exaggerated....

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    Gavekal Research

    Abundance And Shortages

    Over decades, investors have gotten used to living in a world of plenty, in which capital, labor, commodities and knowledge have all been in abundant supply. Today, however, while the world remains awash with cheap capital, there are signs that the supplies of labor, commodities and—most ominously of all—knowledge may be facing tightening constraints. In this paper, Louis asks whether, after years of abundance, the world may be facing a...

    2
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    Gavekal Dragonomics

    What To Do About Capital Inflows

    The surge of foreign interest in China’s bond market has created a novel economic problem for its policymakers: managing sizable inflows of portfolio capital which are pushing up its currency. In this piece, Wei explains how China has tried to encourage capital outflows to balance those inflows, and why that is becoming less necessary.

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    Gavekal Research

    Video: Unpacking The NFT Hype

    What’s a “non-fungible token”? Why would anyone pay millions of dollars for one? And what do they have to do with blockchains? In this video interview, Will unpacks the latest craze to explain what buying an NFT actually gets you, and considers whether this is a useful new technology or yet another case of blockchain hype.

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    Gavekal Research

    Who Will Buy India Now?

    On Tuesday, the US dollar index hit a five-month high and treasury yields maintained their relentless march higher. On the same day, the Indian rupee—this year’s best performing emerging market currency—plunged to a one-month low. A mix of tighter financial conditions and a worsening Covid-19 situation has investors reassessing the surprising notion of India as an EM haven. They are right to do so, for the macro tailwinds driving the rupee’s...

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    Gavekal Research

    Yield Differentials Matter—For Now

    As the first quarter draws to a close, the US dollar has confounded December’s bearish consensus expectations by generating a positive total return versus the euro of 3.8%. As Louis and Will and KX explained last week, in retrospect the US dollar’s performance over the last three months is not that surprising. The question now is: how long will these near-term factors persist?

    2
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    Gavekal Research

    Like A Hell-Broth Boil And Bubble

    Last week began with a -15% fall in the Turkish lira in Asian trading on Monday morning. This week started with a -16% fall in the share price of Nomura in Asian trading on Monday morning. It would be easy to dismiss the two events as entirely unrelated. At first glance they have nothing in common, but in this piece Tom takes a closer look.

    4
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    Gavekal Dragonomics

    Speeding Ahead On Vaccination

    China administered over 3mn doses of Covid-19 vaccines on Thursday, accelerating its vaccination drive from around 1mn doses per day in February and 2mn per day last week. In this Quick Take, Ernan explains why this acceleration is not enough to meet the country’s vaccination targets, as the government’s main hurdle is not production but logistics.

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    Gavekal Research

    When Will Borders Reopen?

    Even as a new Covid wave sweeps across Europe, the European Union has gotten to work on a Digital Green Certificate to allow resumption of travel, within the bloc and beyond. Health passports that securely document vaccines and test results for travelers are key to opening up borders again. But as Tom explains, getting countries to agree on rules and standards will be a painful slog.

    0
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    Gavekal Research

    Rewind To Look Ahead

    There has hardly been a single piece of news in the last three months that could have been construed as euro-bullish. And yes, the euro has weakened. But given the newsflow, it is remarkable that the euro is not down a whole lot more. So, considering the newsflow and the 200bp spread between 10 year treasuries and bunds, why hasn’t the US dollar rallied more?

    2
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    Gavekal Research

    Webinar: The Future Of The Great US Rotation

    Much has happened in the US in the last eight weeks. More than 80mn Americans have been vaccinated against Covid, Congress has passed a stimulus bill worth 9% of GDP, and the Fed has confirmed its determination to remain among the most peaceable of inflation doves. In response, 10-year US treasury yields have leapt, and the rotation from growth stocks to value has grown more violent even as the broad equity market has ascended new heights. In...

    0
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    Gavekal Dragonomics

    For Want Of A Chip

    China’s car market is starting to show the first effects of the global chip scarcity, but Thomas and Ernan write that the shortage might just be starting to bite. Supply could resume by Q3, but even a temporary drag on auto production will have material consequences for China’s industrial sector and the economy at large.

    0
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    Gavekal Research

    The Future’s Clear, The Future’s Green

    Europe’s Green parties used to be denigrated by their political opponents as “watermelons”: green environmentalists on the surface, red hard-leftists beneath. In Germany, this attempt to marginalize the Greens by associating them with the discredited revolutionary socialists of 50 years ago failed dismally. Having established their credibility in regional politics, notably in Germany’s third richest state of Baden-Württemberg, where they have...

    2
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    Gavekal Research

    Video: Pushing Less Hard On The String

    Concluding a long-awaited policy review, last week the Bank of Japan signaled that after almost a decade of pursuing titanic quantitative easing targets, it will be looking to make fewer asset purchases from now on. In this short video interview, Udith weighs the implications for Japan’s economy, its bond market, the yen, and Japanese equities.

    0
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    Gavekal Research

    The Short And Long For The US Dollar

    After ending 2020 amid heavily negative sentiment, the US dollar has confounded near-term bears by edging higher year-to-date. The DXY dollar index has gained 2.75%, clawing back just over a third of its -7.5% decline in 2020. Perhaps this should not be too surprising. First, by the end of 2020, the US dollar was no longer blatantly overvalued. Second, the DXY found support at 90, its low of early 2018. Third, the near-term outlook for nominal...

    2
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    Gavekal Dragonomics

    Slowing Down Steel Production

    Policymakers have pledged to “ensure a year-on-year decline” in steel output this year to help China achieve peak carbon-dioxide emissions by 2030, but these curbs will not reduce the country’s underlying demand for steel. In this report, Rosealea analyzes the feasibility of this target and its consequences for the steel industry.

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    Gavekal Research

    Financial Manias: The Crypto Craze

    After scrutinizing the electric car craze last week, today Louis turns his gimlet eye on crypto-currencies. Yes, bitcoin now has a market capitalization of US$1trn, but what does it actually do? What value does it add to economies and societies? On close examination, Louis finds that the functions of bitcoin are relatively straightforward, if not particularly edifying. And more to the point, they are already attracting the sort of attention that...

    18
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    Gavekal Research

    The Strengthening Case For Value

    In the last two weeks, US value stocks have given up some of the outperformance relative to growth that they racked up over the previous five. So has value’s spurt of outperformance now run its course, leaving the S&P 500 value index’s 11pp of outperformance relative to growth since the beginning of February as just a counter-trend blip against a backdrop of more than a decade’s underperformance? Or are the relative gains in value since the...

    0
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    Gavekal Research

    The Extent Of Turkish Contagion Risk

    After four and a half months in which Turkish central bank governor Naci Ağbal had raised policy rates and restored a measure of confidence in the Turkish lira, on Saturday Turkish president Recep Tayyip Erdoğan fired Agbal and replaced him with a loyalist who has echoed the president’s conviction that higher interest rates lead to higher inflation.

    1
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    Gavekal Dragonomics

    What Strategic Competition Looks Like

    Last week’s diplomatic meeting between China and the US was marked by harsh rhetoric as both sides used the event to signal toughness to their home audiences. In this report, Arthur and Dan outline what policy tools Beijing and Washington have at their disposal and why the Biden administration is struggling to articulate a clear China strategy.

    1
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    Gavekal Research

    Weak Links No Longer

    Once upon a time, a steep rise in US yields coupled with capital outflows—like those we’ve seen in recent weeks—would have led to intense financial stresses in Asian emerging markets. Weak-link economies with fragile fiscal positions and precarious external balances would have been vulnerable to abrupt sell-offs and destabilizing currency depreciation. As sentiment swung risk-off, investors would have gotten badly trampled in the rush for the...

    0
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    Gavekal Dragonomics

    Webinar: Making Sense Of China’s Grand Plans

    The annual session of China's National People's Congress has wrapped up with the approval of a new five-year plan, a sweeping document that promises not only technological self-sufficiency but a different style of economic management in coming years. In this webinar, our China experts unpacked what these grand promises really mean, and also discussed the substantial recent correction in Chinese equities and where markets are headed...

    0
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    Gavekal Research

    Financial Manias: The Electric Car Craze

    Almost wherever you look today, there are bubbles: in SPACs, in crypto, and in electric vehicles. In this report, the first of a series on today’s financial manias, Louis reviews Gavekal’s tried and tested framework for analyzing bubbles, and applies it to today’s mania for electric vehicles. He concludes that the electric car bubble is unique in history, and that the prognosis for many investors in the sector is less than encouraging.

    17
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    Gavekal Research

    Markets After The Fed

    The Federal Reserve saw no need to ease monetary policy any further at its March meeting which concluded Wednesday. That’s no surprise. Policy is already extremely easy, and growth and inflation are already looking up. Indeed, the Fed has pumped so much money into the system that the one policy change it felt compelled to make was to increase counterparty limits on its reverse repo facility from US$30bn to US$80bn in response to concerns that...

    0
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    Gavekal Research

    Video: Conflicting Forces In The Hong Kong Market

    The Hong Kong stock market started 2021 as one of the world’s best performing, gaining 14% in the first six weeks of the year. In the weeks since, however, Hong Kong-listed equities have given back half those gains as sentiment has soured. In this short video interview, Vincent weighs the opposing forces at work in the local market to assess how they are likely to play out in the future.

    0
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    Gavekal Dragonomics

    The New Plan For Urbanization

    The 14th five-year plan outlines significant changes to China’s household registration (hukou) system. In this report, Ernan writes that this new policy direction is to reduce the significance of the system over time by reducing urban/rural inequality. Rural areas will benefit, but at a cost to China’s overall economic growth.

    0
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    Gavekal Dragonomics

    Time To Fix Credit Ratings

    2021 could be a pivotal year for the overhaul of credit ratings, which have long been an impediment to the functioning of China’s corporate bond market. The defaults of a few AAA-rated state firms have now pushed regulators into tackling long-standing problems, at a moment when cyclical and structural conditions are favorable for reform.

    0
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    Gavekal Research

    Attack Of The Drones

    Military technology is a lynchpin of the geopolitical balance. And the superiority of US weaponry has been one of the principal factors underpinning the US dollar’s status as the world’s reserve currency. However, recent events raise important questions about whether the US can retain this superiority.

    19
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    Gavekal Research

    Let's Twist Again

    When they sit down on Wednesday, the members of the Federal Open Market Committee will face a couple of knotty questions. Should they attempt to do anything about rising bond yields? And if so, what?

    4
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    Gavekal Research

    How Bad Is Europe’s Vaccine Problem?

    The Covid news from Europe only seems to lurch from bad to worse. The suspension by several European Union countries of distribution of AstraZeneca's Covid vaccine over possible side-effects threatens to disrupt the EU’s vaccination programs and damage public confidence in vaccines in general. So how bad are things likely to get?

    3
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    Gavekal Dragonomics

    Looking Past The Base Effect

    The collapse in activity during the Covid-19 lockdowns in early 2020 has ensured some eye-popping economic data for January-February 2021. In this report, the Dragonomics team looks past base effects to find consumption and services still on track to normalize this year, while industry and property will likely cool as policy tightens at the margin.

    0
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    Gavekal Research

    When Currencies Misbehave

    In recent days, investors have had to absorb a series of troubling headlines from Europe, yet news that should be either bearish for the euro or bullish for the dollar failed to keep the euro from gaining last week. Meanwhile, the yen continues to grind lower. Why is that, and what does the inability of the dollar to rally tell us about the future?

    6
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    Gavekal Dragonomics

    There Is No Plan To Boost Consumption

    Consumption and domestic demand are everywhere in the Chinese government’s latest policy rhetoric, with high-level promises to “boost consumer spending across the board” and “create a robust domestic market.” In this piece, Andrew explains why the new five-year plan is not actually a plan to boost consumption.

    2
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    Gavekal Research

    The New High-Pressure US Economy

    Having just signed off on US$1.9trn of Covid relief, the US government has now spent US$5trn on support measures since the pandemic began. Unfazed by warnings that it could overheat the economy and spur runaway inflation, the White House plans another big package of public investment that aims to tackle climate change, upgrade US infrastructure and revamp education. Joe Biden seems intent on spurring a “high-pressure” economy.

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