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E.g., 06-12-2021
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    Gavekal Research

    Ripple Effects On The Supply Chain

    A year after a handful of auto manufacturers first began to complain about difficulties sourcing integrated circuits from component suppliers, the global semiconductor shortage has broadened to affect the sales outlook of high-end industry segments—such as premium smartphones—that until recently have remained largely immune. This is causing ripple effects far back along Asia’s hardware supply chains, which is bad news for the region’s export...

    0
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    Gavekal Research

    Webinar: Europe's Winter Troubles

    As winter sets in, Europe seems beset with uncertainties: around Covid, energy prices and inflation. Anatole Kaletsky, Cedric Gemehl and Nick Andrews weigh these and other forces that will be at work in 2022 to assess the outlook for Europe’s economy and markets in the new year.

    0
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    Gavekal Research

    The Importance Of What Didn’t Occur

    Amid all the turmoil of the last week or so, the most significant market move may be one that didn’t happen. When news of omicron hit the wires markets saw sharp moves. Usually in times of uncertainty, the US dollar rises on a safe-haven bid. Last Friday that didn’t happen; the US dollar fell against most major currencies.

    0
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    Gavekal Research

    Strategy Monthly: Europe’s Way Through The Woods

    As 2021 draws to a close, economies and markets are once again beset by uncertainty. But looking beyond the immediate short term, there are reasons for cautious optimism about the eurozone’s economic performance in 2022, although investors are advised to assume a defensive stance.

    0
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    Gavekal Dragonomics

    Regulatory Risks Remain

    China’s crackdown on internet companies is far from over. The government is pursuing a broader rectification of internet business practices, and regulators have been given tougher enforcement powers and broader reach. Ernan and Thomas explain that while this environment may not be terrible for all internet companies, it is still a risky one.

    2
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    Gavekal Research

    Trading Omicron

    Fear is stalking markets on concerns that the global economy could be hit by an Omicron Covid outbreak and the world’s central bank will not ride to the rescue. Comments by Jay Powell yesterday on a faster-than-planned taper to the Federal Reserve’s asset purchases added to the bad brew for risk assets. This sell-off reminds that despite recent calm conditions, highly-valued US equities are prone to sudden volatility. There are reasons to think...

    0
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    Gavekal Research

    Video: The State Of The US Economy

    With US inflation way above target, the Federal Reserve is considering a faster than initially planned wind down to its asset purchases. In this video interview, Will examines the US’s inflationary dynamic and assesses the impact that a renewed Covid outbreak could have on the growth outlook and markets.

    0
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    Gavekal Dragonomics

    Property Becomes A Fiscal Burden

    With a downturn in property intensifying China’s economic slowdown, hopes are rising that a pickup in infrastructure investment will help stabilize growth in 2022. But as Wei argues in this piece, the property downturn is becoming a major drag on local-government finances, which will limit their ability to boost public works spending.

    2
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    Gavekal Research

    The Phantom Menace

    Prices are rising around the world, but how do we know that all orders are real? If firms have responded to global supply congestion and long delivery times by ordering more than they need to meet demand, it is likely that some will end up not taking delivery of what is apparently due them.

    0
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    Gavekal Research

    The New, Yet Forgotten, Inflation Force

    The global economy and global energy markets were transformed by China’s dramatic expansion of the last 20 years. Most of that growth was fueled by coal, which now finds itself in policymakers’ crosshairs—even in China. Louis assesses the world’s energy mix and asks what the macroeconomic implications will be of a pronounced move away from the dirty fuel.

    7
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    Gavekal Dragonomics

    The Next Wave Of Bank Stress

    The downturn in China’s property sector will be a strain on smaller banks, which are less well-capitalized and often more exposed to the real-estate sector than their larger counterparts. In this piece, Xiaoxi explains why regulators are likely to take a hands-off approach to the problem, tolerating bank closures and encouraging bank mergers.

    0
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    Gavekal Research

    Teaching An Old Dog New Tricks

    The US dollar has long been a poor reserve of value. For decades, German bunds did the job. But negative yields mean they no longer fit the bill. That leaves the US equity market as the world’s chosen reserve of value—with far-reaching implications that Charles explores in this landmark paper.

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    Gavekal Research

    The Economics Of Covid Divergence

    Even before omicron showed up, European governments had reacted to high Covid case loads with demand-sapping limits on travel and social activity. In the US, by contrast, most Covid restrictions continue to be focused on what can be generalized as the economy’s supply side. The betting must be that this divergence of approaches remains—and is even reinforced by omicron.

    0
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    Gavekal Research

    When Risk Appetite Returns

    Whenever a currency crisis engulfs an emerging economy, investors nervously look around for the next shoe to drop. After the meltdown this week in the Turkish lira—down -20% in November; -40% year-to-date—precedents from the Asian crisis of 1997-98 to the 2013 taper tantrum suggest contagion might be about to spread to infect the rest of the emerging currency complex. However, despite the broad strength of the US dollar and steep falls in a...

    3
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    Gavekal Research

    India’s Economy Retreats With Modi

    Last week saw India's prime minister Narendra Modi stun political friend and foe alike with a decision to repeal the laws that underpinned his flagship reform of India’s sclerotic agricultural sector. Udith argues that the likely losers from Modi’s U-turn will be the poor, as India’s structural growth prospects have just taken a big knock.

    0
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    Gavekal Research

    Houston, We Have A Problem

    Charles looks at global bond and equity markets, concluding that the combined effect of central bank policies and private sector indexation is creating a massive corner in the US dollar and US equities.The last time something similar happened was in late 1989, when Japanese equities made up more than half of MSCI World.

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    Gavekal Research

    Biden’s Impotent Signaling

    Media pundits were quick to dismiss Joe Biden’s release of oil from the US Strategic Petroleum Reserve as a failure Tuesday, on the grounds that the price of crude oil promptly rose by 4%. They were harsh. Despite Tuesday’s rise, the price of WTI has actually fallen by around -7% over the last four weeks as the market priced in the prospect of an SPR draw.

    3
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    Gavekal Dragonomics

    The Stimulus Won't Be Green

    As the sharp downturn in China’s property sector continues to deepen, hopes for the stabilization of economic growth are turning to the prospect of a “green stimulus” via two new lending tools. In this report, Wei explains why the impact of these tools is likely to be negligible, as they are no substitute for an actual relaxation of macro policy.

    0
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    Gavekal Research

    Video: Russia And The European Energy Equation

    The sharp rise this year in European energy prices has been widely attributed to Russia, which has declined to increase near-term supplies of natural gas to Europe in line with the region’s demand growth. Nick examines the incentives guiding Moscow’s decisions and explores the potential impact of Russia’s choices on Western Europe’s inflation and growth outlook.

    0
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    Gavekal Research

    Biden's Fed Picks

    President Joe Biden took the path of least resistance in nominating Jay Powell to serve a second term as Federal Reserve chair. It reinforces my view that macro policy will be driven more by changes in the economic data than changes in Fed leadership. At the sectoral level, these appointments should be positive for US bank stocks.

    0
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    Gavekal Dragonomics

    The Dual Strategy For Semiconductors

    China’s drive for semiconductor sovereignty is entering a new phase, with government and industry converging on a dual strategy to reduce vulnerability to US sanctions. First, create a domestic supply chain for mature chip technology; second, invest in new technologies that could offer a different path to competing with leading-edge products.

    2
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    Gavekal Research

    Tantrum, What Tantrum?

    As the Federal Reserve dials back its quantitative easing program, emerging market assets have come under selling pressure, much as they did in 2013. Yet, it would be wrong to see this as a “taper tantrum”. What cannot be disputed is that global bond markets have, in recent months, thrown a strop.

    0
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    Gavekal Dragonomics

    Consumer Outlook & Trends 2021

    China’s strong consumer recovery was waylaid by renewed Covid restrictions in 2021, which has kept services like travel and tourism depressed. The zero-tolerance Covid policy is certain to continue through 2022, shaping the pattern of consumer spending. In her annual consumer review, Ernan explains the cyclical outlook and key structural trends.

    0
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    Gavekal Dragonomics

    Charging The Future

    The world needs more batteries, both to power electric vehicles and store electricity for green power grids. China is in a prime position to meet that demand as it already commands a large majority of both current and planned production capacity. It is therefore probable that Chinese firms will be commanding leading positions in a decade’s time.

    0
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    Gavekal Research

    Webinar: Contrarian Takes On Two Emerging Markets

    The consensus view seems to be that Brazil is too risky and South Korea is the big money-maker among emerging markets. Not quite so, say Udith and Vincent. In this webinar, Udith outlines why it may be worth it for investors to take on some risk in Brazil and Vincent argues that South Korea’s star may be fading as the export outlook weakens and inflation rises.

    0
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    Gavekal Research

    An Italian Renaissance?

    Visiting Gavekal clients in Italy this week for the first time in 18 months, I have been struck by the mood of sunny optimism that pervades the country’s financial community. Arriving there myself with a relatively upbeat view on Italy’s economic prospects, I was expecting at least a partial reality check from clients. But pushbacks were rare and half-hearted. Instead, stories of thriving new start-ups and returning Italian expatriates abounded...

    1
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    Gavekal Research

    The Real Yield Mystery

    One of Will’s key calls for 2021 was that real yields on US treasuries would rebound from their deeply negative levels. But despite the news of Fed tapering, real yields have remained stubbornly low. Here, Will examines a number of factors that may be offsetting the expected effect of tapering and concludes investors should be wary a rise in real yields on treasuries.

    9
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    Gavekal Research

    Shanghai Seminar — November 2021

    In our recent Shanghai seminar, Arthur Kroeber addressed China's policy moves this year, the decarbonization drive and the rivalry with the US; Thomas Gatley outlined the status and prospects for China's economy and markets; and Louis Gave presented his latest macroeconomic views as inflationary pressures around the world continue to mount.

    0
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    Gavekal Research

    South Korea’s First-Mover Problem

    South Korea's central bank was the first in Asia to raise interest rates this cycle. Yet despite its apparent prudence, the market has focused on Korea’s worsening growth outlook and the BoK’s apparent limited scope to ease monetary policy. Vincent assesses the outlook for one of Asia’s powerhouse economies.

    0
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    Gavekal Research

    Piling On The Misery

    Faced with a fourth wave of coronavirus infections, and in some places even a fifth, European Union governments are again tightening their public health restrictions. Clearly this cannot be good news for Europe’s near-term economic outlook. But how bad is it likely to be? A Covid misery index may provide a useful guide.

    0
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    Gavekal Dragonomics

    Inflation Is Still Not A Problem

    China reported a record surge in its producer price index, prompting fears that the country is both a victim of the same supply-chain shocks facing the US and an exporter of further inflationary pressures. Thomas explains that while these concerns are unfounded, domestic growth momentum is the real problem.

    0
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    Gavekal Research

    Making Sense Of Bond Market Moves

    The last month has seen a number of major shifts occur in the US treasury market which may well be leaving investors scratching their heads over how to interpret them, especially as some appear at first to be conflicting. On examination, however, the market is sending four clear messages. They are consistent with each other. But that does not mean they are all right.

    0
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    Gavekal Research

    Video: The Conflicting Signals In US Consumption

    The US recorded continued strong retail sales growth in October. But more forward-looking surveys are showing a deep deterioration in consumer sentiment as gasoline prices have risen to seven-year highs, acting as an effective tax on households’ discretionary spending power. In this video interview, KX weighs these conflicting forces to assess the outlook for US consumer demand in 2022.

    0
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    Gavekal Research

    Return Of The Kitsune

    In Japanese folklore, a kitsune is a magical, very wily, nine-tailed fox who wriggles out of tricky situations. It resembles our financial markets, which have a doughty ability to manage “tail risks”. Last year, Louis wrote a series of articles looking at such risks and today returns to that theme in a substantially changed investment context.

    2
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    Gavekal Research

    Don’t Panic, But Do Be Wary

    On Monday, Anatole argued that Markets Are Right To Ignore The Inflation Panic. His case is that favorable base effects and more moderate demand growth now that the initial reopening boom is over mean headline inflation rates will moderate significantly next year. As a result, the current elevated inflation rates will prove largely transient, rendering an aggressive monetary policy response unnecessary. This benign scenario is possible, but I...

    1
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    Gavekal Research

    Markets Are Right To Ignore The Inflation Panic

    Considering last week’s headlines about US inflation exploding to 6.2%, a level not seen since 1990, many investors and most economists seem baffled, or even angry, about how equities keep hitting new highs while bond yields remain remarkably stable in a narrow trading range of 1.25% to 1.75%. In my view, the most surprising thing about these market conditions is that they are described as surprising. Sky-high equity prices and rock-bottom...

    3
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    Gavekal Dragonomics

    The Persistent Property Problem

    The downturn in China’s property sector remains a major headwind for the country’s economic momentum. In this Quick Take, the Dragonomics team explains that although the downturn in China’s property sector will continue to weigh on growth, officials are showing no signs of easing up on restrictions.

    0
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    Gavekal Research

    Webinar: A Climate Of Change

    As the COP26 climate conference reached its end, our team of analysts convened to discuss what to make of the world’s major economies’ climate pledges. Europe has the most ambitious target, the US has finally outlined its specific goals, and China too has set a date by which to achieve a net-zero emission economy. How rough will the transition be?

    0
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    Gavekal Research

    Payback Time In Asia

    Other than in China, policymakers in Asia made two big macro bets during the pandemic. Asian governments spent big and central banks have stayed easy for longer than counterparts in other emerging markets. Alas, their bets on inflation proving transitory are coming unstuck and the actions they now take will influence returns in the region for years to come.

    0
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    Gavekal Research

    A Contrarian View On Brazil

    An inverted yield curve usually points to trouble ahead, and Brazil’s just flipped for the first time in five years. Add to that a botched Covid response, blowout fiscal deficits and political risk, and the next year may be one of living dangerously in Brazil. But given attractive valuations, Udith says there are good reasons for investors to take that risk.

    0
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    Gavekal Dragonomics

    Mortgage Easing Begins

    China’s outstanding mortgage loans grew in October, confirming anecdotal reports that banks have been allowed or encouraged to pick up the pace of mortgage lending. Wei and Xiaoxi explain that while more relaxation measures are likely on the way for property developers, it’s too early to say that their financial conditions are improving.

    0
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    Gavekal Research

    Inflation’s Medium-Term Cure

    After consumer price inflation in October topped forecasts, it is clear that the US economy is running hot. And as workers embrace the “great resignation” rather than seek fresh work, the US labor market is tight. Still, my inflationary glass has tended to be half-full on the basis that improved US capital spending should ultimately help fix the economy’s supply side.

    0
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    Gavekal Dragonomics

    Politics And Policy In Common Prosperity

    It’s now been a year since top leader Xi Jinping first laid out his new goal of achieving “common prosperity,” but how exactly that new slogan translates into government policy still remains rather unclear. As Andrew explains in this piece, that’s because common prosperity is ultimately more of a political campaign than a coherent policy agenda.

    0
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    Gavekal Research

    Transitory Inflation’s Unanswered Questions

    As a child, I was lucky enough to attend a Jesuit school. I once asked a teacher: “Father, is it true that Jesuits always answer a question with another question?”. The priest looked me up and down and answered: “Who told you that?”. In this spirit, I will try to answer today’s biggest market question—whether inflation proves transitory, or not—with more questions.

    13
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    Gavekal Research

    The Fed Chair Question And The Euro

    The resignation Monday of US Federal Reserve governor Randy Quarles has highlighted the question marks hanging over his boss, Fed chair Jay Powell. With each week that goes by, the failure of Joe Biden to renominate Powell shortens the odds that the Fed chair will not see a second term. This may help to explain the recent rallies in bonds and equities. If Powell is to be replaced, his successor is likely to be even more dovish. Given the White...

    0
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    Gavekal Dragonomics

    A Conservative But Costly Plan

    A major concern of negotiators and activists at this month’s global climate meetings is the size and credibility of China’s decarbonization commitment. However, as Arthur and Rosealea explain there are good reasons to believe that climate goals will play a large role in China’s policy mix in the coming decade—with large risks to economic growth.

    2
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    Gavekal Research

    Video: A Looser Labor Market

    In the US expectations are growing that labor shortages will drive accelerating pay rises, exacerbating inflationary pressures. In the eurozone, as Nick explains, the situation is different. Although anecdotes abound about employers struggling to staff up, these are a temporary wrinkle caused by rapid reopening in narrow sectors.

    0
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    Gavekal Research

    Hedging A Tighter US Economy

    After October’s payroll report came in strong on Friday, the S&P 500 hit a new high. On Saturday, the House Of Representatives was corralled into passing the Biden administration’s delayed infrastructure bill and there is a good chance of the “reconciliation bill” becoming law. Given such boosts to demand, US equity investors could be forgiven for expecting smooth sailing ahead. But KX warns of higher volatility.

    0
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    Gavekal Dragonomics

    The Case Against Easing

    Even though growth has been very disappointing in China, markets are not pricing in more monetary easing from the central bank. In this piece, Wei reviews the arguments currently being made for keeping interest rates on hold—and finds them all wanting. China’s policymakers are indeed being quite conservative, but will still end up cutting rates.

    4
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    Gavekal Research

    Fortress Europe (Again)

    One of Europe’s enduring mysteries is why the continent’s left-of-center political parties, many of them steeped in Marxist theory, became such eager exponents of European integration. Integration, after all, promised to expose the domestic workers whose interests the left claimed to represent to cut-throat cross-border competition.

    4
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