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E.g., 20-10-2020
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    Gavekal Research

    The State Of The US Consumer

    Data released on Friday showed that US retail sales rose a welcome 1.9% month-on-month in September. However, fears are growing that the stars are now aligning against the US consumer. First, new Covid infections are climbing rapidly to rival the numbers seen at the height of July’s second wave. With government infectious diseases boss Anthony Fauci warning that things are set to get worse heading into winter, this new wave of infections raises...

    2
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    Gavekal Dragonomics

    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 Research

    Webinar: Understanding Chinese State Capitalism

    The advance of the private sector and the retreat of the state sector has been central to China’s long transformation from an isolated socialist nation to a globally connected economy. Yet the notions of China’s private sector being either in the ascendency, or facing a squeeze in the statist Xi Jinping era are not born out by the facts. Andrew Batson discussed the findings in his recent major piece of research on this topic.

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    Gavekal Research

    Europe Battens Down

    Having remained sanguine over recent weeks as coronavirus infection rates in Europe mounted, on Thursday investors sat up and paid attention. After the French government imposed a 9:00pm curfew on Paris and eight other cities, and after the German government tightened restrictions on Covid hotspots including Berlin and Frankfurt, the euro Stoxx index fell -2.2% during Thursday’s session. Clearly as infection rates have risen, and governments...

    0
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    Gavekal Dragonomics

    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.

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    Gavekal Research

    A Behind The Scenes Cash Boost

    US Treasury Secretary Steven Mnuchin’s admission that striking a deal with Congress on a new stimulus package before November’s election will be “difficult” was blamed for eroding market sentiment. Maybe. But behind the scenes, the Treasury has begun to run down some of the cash hoard it accumulated between April and August.

    0
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    Gavekal Research

    Video: Gauging Asian Resilience

    Since the panicked sell-off of March, Asian emerging markets have been a relative bastion of stability. Northeast Asian equities have done well as effective pandemic control and strong export markets have powered an economic recovery, while Southeast Asia has offered bond investors solid returns as liquidity from aggressive policy easing has mostly flown into safe assets. In this video interview, Vincent discusses whether the equilibrium will be...

    0
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    Gavekal Research

    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. In the first of a three-part series, Louis examines in depth what could cause the oil price to break out of its current trading range.

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    Gavekal Research

    New Tech, Same Fiat Money (For Now)

    This week saw seven western central banks and the Bank for International Settlements issue a joint report on central bank digital currencies. They come not to bury cash nor to undermine banks, but to modernize payments for a digital age. If so, the introduction of CBDCs is unlikely to upend the banking system and monetary policy, but would resemble the rollout of ATMs in the 1960s.

    2
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    Gavekal Research

    Counting Europe’s Zombies

    Usually when an economy contracts, corporate bankruptcies go up. This time is different. In European countries, bankruptcies in the second quarter—the low point of the lockdown-induced economic collapse—were down by anywhere between -16% and -33% in year-on-year terms. By suspending normal bankruptcy regulations and offering generous liquidity assistance, European governments successfully prevented their lockdowns from causing a mass wave of job...

    0
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    Gavekal Research

    A Typology Of Bear Markets Based On Wicksellian Analysis

    In half a century of doing financial analysis, Charles has acquired the core conviction that there is not one type of bear market, but two. Think of these as the gentle black bear-type downturn that is survivable and the highly-dangerous, big brown grizzly collapse that for many money managers proves fatal. In this piece, Charles seeks to map this insight with some analytical rigor.

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    Gavekal Research

    Keeping It Super Simple

    Let me start with President Donald Trump’s policies as I understand them. As a businessman, since taking office in 2017 his singular goal has been to keep US firms’ return on invested capital as high as possible. So, if Trump is reelected on November 3, I would expect more of the same. In contrast, a Joe Biden win would lower ROIC and cause the US dollar to fall against the euro.

    0
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    Gavekal Dragonomics

    What The Holiday Means For Consumption

    Tourism over China's weeklong National Day holiday disappointed, with tourism revenues down 30% YoY. In this Quick Take, Ernan writes that Chinese consumers still seem concerned about long-distance travel, and are instead spending their money locally; however, the overall recovery in consumer spending is still continuing apace.

    1
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    Gavekal Research

    Webinar: Global Investment Roundtable, October 2020

    Yanmei Xie discussed the US team’s assessment of risks surrounding the US election, Anatole Kaletsky explained the reasons for his return to bullishness and Louis Gave talked about global asset allocation and how to find “anti-fragile” assets.

    0
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    Gavekal Research

    Video: The Euro's Next Move

    The euro’s appreciation against the US dollar has stalled out as resurgent Covid-19 infections threaten new lockdown measures, and a possible upending of the economic recovery. Nick argues that the euro’s decade-long run as a “weak currency” was down to policy settings that kept domestic demand weak. A convincing reversal is not likely until those domestic drivers are again firing.

    0
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    Gavekal Research

    Not Quite A Game-Changer

    Earlier this week, Indonesia passed a sweeping “omnibus law” aimed at attracting foreign investment by lowering taxes, reducing labor costs and cutting red tape. In pushing through the new law, president Joko Widowo hopes to capture a slice of Asia’s shifting manufacturing-for-export business, as regional supply chains migrate away from China.

    0
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    Gavekal Dragonomics

    The Phantom Mechanism

    In late July, Beijing declared that a trial “long-term mechanism” for regulating real estate had achieved “significant results” despite having never been properly defined. Rosealea posits that the mechanism is a combination of smaller reforms implemented in recent years, concluding that major policy changes are therefore unlikely for now.

    1
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    Gavekal Research

    European Divergence Is Back

    Like a car, the more excess weight you add to an economy, the slower it drives. Slapping restrictions on normal activities, even if income support measures are offered, makes it harder for an economy to grow. In Europe, the second wave of Covid-19 infections is having an uneven effect depending on the severity of the outbreak and the sector composition of the affected economy. The result will be to deepen the divergence in European growth and...

    0
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    Gavekal Research

    The Guiding Principle Of Our Time

    The dominant guiding principle of contemporary western society, or at least of its elite, appears increasingly to be “CYA,” which we might euphemistically render as “protect your posterior.” In this paper, Louis argues that the CYA principle is increasingly governing fiscal and monetary policy, as well as how investors act in the financial markets. The implications are significant.

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    Gavekal Research

    Antitrust Law And The Tech Cycle

    On Tuesday the US Congress fired a broadside against Big Tech, when a House of Representatives subcommittee on antitrust law published a 449-page report accusing Facebook, Amazon, Apple and Google of abuse of market power, and calling for them to be “reined in.” The report’s publication reflects a shift in regulatory thinking about Big Tech.

    12
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    Gavekal Research

    No More Stimulus

    Within the span of a day, President Donald Trump called off Congressional talks over new fiscal stimulus and then tweeted that he supports sending more checks to all Americans. As Democrats will likely balk at such a deal without more support for the jobless, the chance of getting fresh stimulus before the November 3 election is dimming. That means no population-wide cash handout, no more business bailouts and another income crunch for the 15mn...

    0
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    Gavekal Research

    India Tackles Rural Reform

    Against an awful economic backdrop, Indian policymakers are pushing through long-awaited reforms to open up agricultural and labor markets. In theory, the reform package should boost competition among buyers, create a national market in farm produce, and help to modernize agriculture by attracting greater private investment.

    3
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    Gavekal Research

    Asia’s North-South Covid Divide

    If anywhere has been a winner from the Covid-19 pandemic, it is east Asia. Compared to other big regions, it has suffered lower infections, fewer deaths and incurred less economic damage. However, that generalization simplifies a big difference between its northern and southern regions, which have had quite different experiences that is also impacting the investment arena.

    0
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    Gavekal Research

    Flows Favor The Renminbi

    China’s renminbi has been appreciating in recent months, driven by heavy flows of portfolio capital into China’s bond market as market participants have concluded US-China tensions do not directly affect the exchange rate. The biggest risk to continued renminbi strength is the possibility that an election victory for Donald Trump could spark fears of a renewed US-China tariff war.

    0
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    Gavekal Research

    Strategy Monthly: The Real US Election Risks

    Some investors worry that a contested US election may spark social and political unrest that is serious enough to threaten US risk assets. They are likely focused on the wrong risk. The US’s democracy faces heavy strains but is nowhere near a breaking point, but the differing outcomes that can occur on (or after) November 3 pose threats to portfolios.

    0
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    Gavekal Research

    A US Dollar Check-Up

    Over the last month, the US dollar has caught a bid. Admittedly, the rally is small. Since the end of August, the DXY US dollar index has edged up by 1.7%, with the rise in broader dollar indexes scarcely much greater. Nevertheless, the recent uptick is causing some to question whether the dollar’s decline has run its course.

    0
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    Gavekal Dragonomics

    The State Never Retreats

    The retreat of the state from the command of China’s economy has been greatly exaggerated. In this 25-page DeepChina report, Andrew uses new estimates of SOEs’ share of GDP to show how little has changed in the state’s role in the economy in the past two decades, and explains how that stability has affected China and the rest of the world.

    2
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    Gavekal Research

    A Dove With Ammunition

    Hawks want the European Central Bank to wind down its monetary stimulus once the immediate Covid crisis is over. On Wednesday, ECB president Christine Lagarde poured a large bucket of cold water over that idea. Speaking in Frankfurt about the central bank’s current strategy review, she made clear that the ECB regards deflation, not inflation, as the main monetary risk, and opened the door to a symmetric inflation target going forward. In the...

    1
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    Gavekal Research

    Webinar: Europe In The Second Wave

    Yesterday Cedric Gemehl, Nick Andrews and Anatole Kaletsky joined Tom Holland to discuss what's going on in Europe. Topics ranged from how the economy is fairing in the second wave of the outbreak, what that means for asset prices, and also where Brexit fits into all this.

    0
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    Gavekal Dragonomics

    The Evergrande Effect

    After a turbulent several days, on Tuesday China Evergrande Group averted a cash crunch that would have reverberated throughout China’s financial markets. In this Quick Take, Rosealea explains why Evergrande’s liquidity troubles are emblematic of the wider issues facing developers following China’s ongoing financing squeeze.

    0
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    Gavekal Research

    Video: Sizing Up US Election Risks

    Tuesday’s ill-tempered presidential debate will only fuel claims that the US election could see massive fraudulent voting and therefore end with the result challenged in court—and maybe on the streets. Such rancor threatens the long-run viability of American democratic institutions, but in the short run Yanmei says the system can comfortably handle a contested election result.

    0
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    Gavekal Research

    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. But the government faces institutional constraints on how much it is willing and able to borrow to plug the gap.

    0
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    Gavekal Research

    China’s Belt And Road Looks To Bounce Back

    Even before the pandemic, it had become a common refrain to write off the Belt and Road Initiative. After foreign loans and construction peaked in 2017, China’s global infrastructure powerplay lost momentum. US-led criticism of Beijing’s “debt trap diplomacy” spread anxiety, forcing Xi Jinping to pledge reform. Then, when Covid struck, hundreds of BRI projects ground to a halt. However, Tom argues that it is too soon to dismiss the initiative:...

    0
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    Gavekal Research

    When Higher Inflation Is Good News

    Equity markets often seem to have a split personality, but seldom more so than over inflation. A sizable portion of investors is worried that the Federal Reserve is struggling to overcome deflationary pressures, while many of the rest fear the explosion in monetary aggregates must inevitably lead to runaway inflation.

    0
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    Gavekal Dragonomics

    Another Strike Against Semiconductors

    US companies will now have to apply for licenses to sell certain technologies to Semiconductor Manufacturing International Corp., China’s leading chipmaker. In this Quick Take, Dan outlines what this means for SMIC and why it is too early to write the firm off completely. The move also increases the risk of Chinese retaliation against US firms.

    3
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    Gavekal Research

    The Trouble Brewing In Thailand

    Thailand is no stranger to political discontent. But the mounting street protests of the last few months are different. Not only do they unite former rival factions, for the first time the monarchy is a target of popular criticism, and these demonstrations are taking place against the backdrop of an economy hit disproportionately hard by Covid-19.

    1
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    Gavekal Research

    Toward A US Health Care Rupture

    The nomination of a new Supreme Court justice with a record of opposing “Obamacare” means the US is more likely to see its health care system upended in the next nine months. Amy Coney Barrett’s probable Senate confirmation raises the chance of the Affordable Care Act being struck down by the court, spurring a plunge in government health-care spending and industry revenue. Multiple outcomes to this issue remain possible, but investors are likely...

    0
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    Gavekal Research

    Video: Behind The Market's Mood Swings

    In recent weeks some of the biggest US equity winners since the start of the Covid-19 crisis have appeared to run out of steam, as the Federal Reserve abstained from stepping up its asset purchases. Meanwhile, Congressional gridlock seems to stand in the way of renewed stimulus for American consumers. Will is not too concerned, and in this interview points out that the Fed still has ample ammunition, and that the strength of the US recovery...

    0
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    Gavekal Research

    EM Currencies At A Pivot Point

    Emerging market economies are heavily impacted by their currency’s level against both the US dollar and the Chinese renminbi. As the dollar is a funding currency, most EMs thrive when it is weak. In contrast, China is both a competitor and a key export market for EM economies, and so a weak renminbi poses a deflationary threat. Since late May, emerging markets have faced the ostensibly benign situation of a weaker US dollar and a stronger...

    0
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    Gavekal Research

    Webinar: Taking Stock Of US-China Decoupling

    In yesterday’s webinar, Andrew Batson presented an overview of where the Chinese economy is going and how the relationship with the US is evolving, and Dan Wang addressed recent US actions in the technological rivalry between the two countries, particularly the latest executive orders on WeChat and TikTok.

    0
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    Gavekal Dragonomics

    The China Inc. Annual Report 2020

    After a historically disastrous quarter, Chinese companies are now enjoying a V-shaped rebound—but what is driving this bounce, and how sustainable is it? In his annual chartbook, Thomas answers these and other questions, dissecting the impact of Covid-19 on China’s corporate sector across sales, margins, profits, cashflow, capex and leverage.

    0
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    Gavekal Research

    Four Exaggerated Concerns

    As if markets weren’t nervous enough, US policymakers have been fueling the nervousness. On Wednesday, a series of remarks spotlighted a number of the main concerns currently troubling investors, including that the US Federal Reserve is out of ammunition, and that disputes over the result of November’s upcoming presidential election could drag on into the new year, plaguing asset markets with additional uncertainty. This focus appeared to...

    10
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    Gavekal Research

    Lockdown-Lite

    A series of controls have been announced by European countries in reaction to sharp increases in the numbers testing positive for the Sars-CoV-2 virus.This has raised fears of renewed lockdowns and economic havoc. But it appears European policymakers are opting for a lockdown-lite approach to public health restrictions in order to minimize the economic damage.

    4
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    Gavekal Research

    Illiquidity And Creative Destruction

    Covid came as a shock to the world, but in many cases it is merely accelerating fundamental trends that were already unfolding anyway. This probably shouldn’t be a surprise. If there has been one constant theme in Gavekal’s research over the last 15 years or so, it is that we are living in an age of accelerating creative destruction.

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  • Gavekal Research

    Don’t Waste Time Analyzing The US Election

    Over the next six weeks, investors will spend hours of mental anguish and spill lakes of agonized ink attempting to analyze the outcome of the US presidential election. Will it really be time well spent? Louis isn’t sure.

    2
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    Gavekal Research

    Caution Prevails In US Attack On Apps

    Last month President Trump issued orders that threatened massive disruption to two of China’s biggest technology companies. But the Commerce Department’s final decision on WeChat was less extreme than feared, and Trump’s blessing of a deal to avert a ban on TikTok signals a promising shift in the political calculus.

    4
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    Gavekal Research

    Video: The US Fiscal Seesaw

    There are some signs that Democrats and Republicans are inching towards a new spending deal to provide "enhanced" benefits to struggling companies and unemployed Americans. Yanmei argues that such a resolution would certainly buttress demand going into the winter season but a "no deal" outcome would not necessarily spell disaster for a US economy that is learning to live with Covid-19.

    0
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    Gavekal Research

    Asia’s Winners In The US-China Tech War

    The US government has stepped up its campaign against China’s leading technology companies, and already the measures against Huawei are taking effect. This threatens to severely disrupt global electronics supply chains, but creates opportunities for companies elsewhere in Asia. Vincent assesses who stands to benefit.

    1
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    Gavekal Research

    Webinar: Embattled India

    India has taken a bigger economic hit from the pandemic than any other major economy, exacerbating a slowdown that was already underway. In addition, India is engaged in a high-stakes standff with China over its Himalayan border, which may force an economic decoupling of the two countries.

    0
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    Gavekal Research

    Riding Europe’s Second Wave

    The latest Covid figures from Europe make sobering reading, with countries including France, Spain and others seeing pronounced second waves of new cases. Equity markets, however, have reserved judgment. Yes, the rebound that started in mid-March has been stalled for the last two months as infections have mounted. However, European markets have not sold off significantly, despite this month’s US volatility. And an examination of the opposing...

    2
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