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E.g., 29-11-2021
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    Gavekal Dragonomics

    How Markets Multiply Subsidies

    China’s government has vast ambitions for its industrial policy, yet it spends surprisingly little on subsidies and tax breaks. Instead, it relies on domestic capital markets for funding. In this piece, Thomas explains how markets can multiply those initial subsidies into much larger spending in the government’s favored industrial sectors.

    2
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    Gavekal Research

    Europe’s Taper Decision

    To taper, or not to taper is the question for the European Central Bank at Thursday’s policymaking meeting. The market seems to think that monthly bond purchases will soon be lowered by about €20bn to €80bn, as shown by 10-year German bund yields rising 14bp in the last two weeks. Economic output in the eurozone is back near pre-pandemic levels and consumer price inflation in August spiked to 3%. There have even been putative sightings of the...

    2
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    Gavekal Research

    Video: The Implications Of Afghanistan

    In the same week that the US military completed its chaotic withdrawal from Afghanistan, President Joe Biden outlined a more contained doctrine for US foreign policy. In this video interview, Yanmei argues against a declinist view of the Kabul dash for the exit, contending that the longer-term impact may be a much-needed reset of the American imperial project.

    0
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    Gavekal Research

    The Most Worrying Shortage

    The world’s most traded commodity, semiconductors, is running scarce, the price of the second-most important commodity, oil, is grinding higher, and the cost of moving things around the world is soaring. All this would be worrying enough, but ask any businessperson in North America or Europe about their biggest constraint, and the answer is likely to be staffing.

    9
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    Gavekal Dragonomics

    How To Create A High-Yield Bond Market

    China’s central bank has now endorsed the creation of a domestic high-yield bond market in an attempt to reverse the increasing exclusion of private-sector borrowers from existing debt markets. In this piece, Xiaoxi outlines how financial regulators are trying to increase both the supply of and demand for high-yield corporate bonds.

    2
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    Gavekal Research

    The Problem Lurking In Malaysia

    Until a few weeks ago, Malaysia had not had a proper prime minister since the eve of the pandemic. The new incumbent emerged out of a messy negotiation and oversees a weak coalition that could easily fracture. For investors, the worry is a steady deterioration of Malaysia’s fiscal fundamentals in a trend that is being seen across non-China emerging Asia.

    0
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    Gavekal Dragonomics

    Earnings Top Out

    China’s non-financial listed companies reported strong sales, profit and capital expenditure growth for Q2. Thomas explains why listed earnings should decelerate into Q3 as the housing cycle turns down and export demand moderates. High retained earnings and low funding costs will continue to support capex, but appetite is likely to weaken.

    0
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    Gavekal Research

    The Coming Slowdown In Europe’s New Orders

    European equities have had a stunning 10 months, returning 46% since the beginning of November 2020 and outperforming even the MSCI US. This performance has been driven by expectations of strong earnings growth— supported by buoyant demand and full order books. Peering ahead, however, there are good reasons to look for the pace of new orders to slow.

    0
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    Gavekal Research

    Strategy Monthly: How To Hedge Tighter Liquidity

    So far, markets have not panicked over the prospect of the Federal Reserve tapering its asset purchases. But when it comes, the taper will materially tighten global liquidity conditions. In this calm before the storm, investors running global portfolios should focus on their hedges.

    0
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    Gavekal Dragonomics

    Flows Favor A Weaker Renminbi

    The renminbi has been strong in 2021, with the central bank largely tolerating a steady march higher in the trade-weighted CFETS index. But this trend will turn in coming months, as inflows of foreign currency on both the current and capital accounts decline. With the PBOC easing as the Fed prepares to taper, the renminbi will weaken modestly.

    0
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    Gavekal Research

    The Long Shadow Of Canada’s Election

    Canada’s federal elections rarely make headlines. This may be because whoever wins, the outcome is usually much the same. However, Canada’s September 20 election may cast a shadow that falls beyond the country’s borders. This is because, to a large extent, the election will be a referendum on Covid policies.

    7
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    Gavekal Research

    Who Is Copying Who?

    When China joined the WTO in 2001, western governments hoped that closer economic integration would pull China towards a more democratic system of governance. Yet two decades on, that hasn’t happened. In fact, argues Louis, recent years have seen governments in the West increasingly infringe on individual liberties for the benefit of the common good.

    17
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    Gavekal Research

    Investing Through The Taper

    After all the build-up hype, investors seem to have taken Jerome Powell saying that the Federal Reserve may soon be buying less assets in their stride. They have no doubt taken solace from the Fed chair’s promise that tapering does not mean imminent interest rate hikes, or quantitative tightening. So is the great 2021 “taper whimper” done and dusted? Perhaps not, for while the Fed’s expectation management has been slick, in the months ahead...

    6
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    Gavekal Research

    The Evolution Of China Risk

    It has been a busy summer for China watchers, with rapid shifts in underlying risks. With that in mind, a quick recap of recent events, and where those leave investors, might make sense. Let me start with the obvious increased risks:

    4
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    Gavekal Research

    China’s Interest In Afghanistan

    The western media have been full of warnings over the last week about how the US loss in Afghanistan is China’s gain, with Beijing poised to step into the vaccuum left by Washington’s withdrawal. But while China is anxious to protect its own security, it has no wish to bury itself in the graveyard of emires and will be extremely circumspect about pouring large investments into such a volataile country.

    2
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    Gavekal Research

    The Never-Ending Chip Shortage

    Nine months after the world’s carmakers began to complain about difficulties sourcing the silicon chips they need to make their automobiles, it is becoming clear these shortages are not just the result of short-lived disruptions. Sure, the pandemic has played havoc with global hardware supply chains. But Covid is worsening underlying shortcomings baked into the semiconductor manufacturing industry. This means there will be no early end to the...

    0
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    Gavekal Dragonomics

    The Drivers Of The Regulatory Crackdown

    What is driving China’s regulatory crackdown on internet and other companies, and what will happen next? In this piece, Ernan explains how four overlapping political campaigns by top leader Xi Jinping are behind the upheaval of recent months, and how those campaigns will guide the government’s enforcement priorities in coming years.

    4
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    Gavekal Research

    How Equities Cured The Summertime Blues

    Now that equity prices have resumed their habit of setting almost daily new records, and true believers in the “buy on dips” mantra have been amply rewarded yet again, it seems worth recalling the causes of the stock market’s mini-panic in mid-July. To be more precise this was a micro-panic, lasting just five days, from July 14 to 19. What happened in those five days to rattle investors?

    0
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    Gavekal Research

    Tapering The Frontier’s Prospects

    On Monday, the International Monetary Fund began disbursing a record US$650bn of its hard currency-like reserve asset to aid stressed sovereign borrowers. Since the plan was first officially mooted in March, financing costs have fallen sharply in frontier economies. The worry now is that this respite reflects the calm before a storm, which will hit when the Federal Reserve dials back its quantitative easing program.

    0
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    Gavekal Dragonomics

    Developers Feel The Squeeze

    The steady drumbeat of tightening on China’s property developers is taking its toll on construction activity. In this report, Rosealea explains why this weakness in construction will not unduly worry policymakers and should even help them achieve their goal of reducing steel production. Developers will therefore continue to feel the squeeze.

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