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E.g., 29-10-2020
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    Gavekal Dragonomics

    Don’t Call It A Bailout

    China’s government is finally rolling out a plan to aid small banks, the weakest links in the nation’s financial system. But don’t call it a bailout, Xiaoxi argues in this piece: while the government will replenish RMB200bn in capital, the money will mostly support relatively solid banks. The truly troubled banks will be shuttered or acquired.

    3
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    Gavekal Research

    Huawei And The Roads Of The Future

    China is engaged in an imperial project that will not be typified by territorial conquest, but by “road building”. This is done to bring commodities to the heart of the empire at the cheapest cost, while higher value-added finished goods are pushed out to its outer realms. It is no coincidence that a common saying for Europeans is that “all roads lead to Rome’”.

    3
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    Gavekal Dragonomics

    Another Leg Up For Growth

    After plateauing in Q2, China’s economic activity is stepping up in Q3, powered by demand in housing, infrastructure and exports, and a lessening drag in consumer services. In this Quick Take, Thomas, Rosealea and Wei explain how these factors will assist the country as it continues down its path back to economic normalcy.

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    Gavekal Research

    Building A New System

    On Monday, Charles argued that developed economies’ moves to nationalize both the creation of money and the distribution of credit would degrade the unit-of-account function played by fiat currencies in many markets. Today, he outlines new monetary mechanisms that are likely to replace, or at least live alongside, fiat currencies.

    3
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    Gavekal Research

    What US-China Decoupling Means For The US Dollar

    Almost all of the world’s commodity trade is done in US dollars, so any commodity-importing country must keep much of its central-bank reserves in US currency. The fact that China, the world’s largest commodity importer, pays for these imports using another nation’s currency was an anomaly even when the US and China got along. As US hostility towards Beijing increases, this raises four possible scenarios.

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    Gavekal Dragonomics

    Hawks In The Driver’s Seat

    The China hawks are at the wheel in the Trump administration and driving as fast as they can. In this report, Arthur outlines the many tactics being employed by hardliners in the White House to lock in an adversarial stance against China ahead of the US elections. However tense things have been so far, even tenser times lie ahead.

    3
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    Gavekal Dragonomics

    Taking On Tencent

    President Donald Trump signed executive orders on Thursday imposing restrictions on Tencent and ByteDance, two of China’s biggest software giants. In this report, Dan explains how the broad language in the orders might end up blocking any US person or company from working with the firms, dealing a major blow to their operations.

    4
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    Gavekal Research

    How To Pay For Sin In The Future?

    Just as success has many fathers, there are many possible explanations for the upside breakout in gold prices. Obvious explanations include a rapid rise in monetary aggregates across the OECD, the fall in the US dollar and growing US-China tensions. An overlooked explanation is the demise of physical cash as a liquid and easily transportable asset.

    2
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    Gavekal Research

    Emerging Markets And The Dollar

    A weakening US dollar is usually an unalloyed positive for emerging markets, so it is no surprise that their assets have rallied since the March 23 bottom in global markets—equities are up 45%, while bonds (both US dollar and local currency-based indexes) have gained 20%. Happy days indeed, but the next stage of the EM rally is likely to be more exacting for investors.

    1
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    Gavekal Dragonomics

    Leading The Way In Export Recovery

    Chinese exports have outperformed expectations due to booming sales of goods related to Covid-19 and Chinese manufacturers staying open when their international counterparts were forced to suspend production. In this report, Thomas explains why China's export growth will continue to flatten in H2 as global trade catches up.

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    Gavekal Research

    Tech As The Battlefield Of The Unfolding Cold War

    Despite technology issues sitting at the heart of the great-power struggle between the US and China, tech stocks continue to brush off geopolitical tensions. Louis is concerned that the market's assumptions don't line up with reality on three counts. It all adds up to a bad brew for tech.

    16
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    Gavekal Dragonomics

    Bringing Back Volatility

    Cleaning up the messy world of wealth-management products is still a key mission in China’s financial de-risking campaign, even if the PBOC has now had to give banks another year to work on it. In this piece, Xiaoxi explains how the regulatory crackdown is pushing the risks hidden in WMPs out into the open, increasing market volatility.

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    Gavekal Research

    The Assault On Chinese Tech

    After a whirlwind of negotiations, the US government may have succeeded in forcing the sale of TikTok’s US operations to a US company. The US earlier used national-security grounds to restrict the business of Huawei. Both companies still have large domestic businesses, but US government actions over the past year may mark a peak for the global expansion by Chinese tech firms.

    1
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    Gavekal Research

    Not All Tech Markets Are Created Equal

    Aided by lockdown effects, Big Tech has rolled out some stellar results. Self-isolating consumers have replaced devices and devoured cloud computing services, spurring a new upgrade cycle. Such demand has boosted Asia’s tech supply chain, but surging hardware demand is about to become more specific, with some segments facing excess supply and others sustained tightness.

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    Gavekal Research

    Webinar: Global Investment Roundtable, July 2020

    In our monthly Global Investment Roundtable, US analyst Tan Kai Xian analyzed the latest US data and assessed the risk that the present economic stall-out turns into a double-dip recession. Arthur Kroeber explained why the Trump Administration has amped up its Cold War rhetoric on China. Anatole Kaletsky tied it all together and tried to explain the recent movements in global markets.

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    Gavekal Dragonomics

    Questions On The Digital Renminbi

    The People’s Bank of China is on the way to becoming the first central bank in the world to launch a digital currency. The idea of a digital renminbi has sparked a huge amount of interest, but confusion and speculation are rampant. In this Q&A, Xiaoxi and Wei provide clear answers to some of the big questions about the digital currency.

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    Gavekal Dragonomics

    Construction’s Surprising Resilience

    After a robust recovery in construction following the Covid-19 lockdown, the big question now is whether this growth rate is sustainable. Using a rolling sum of construction starts, Rosealea posits that construction should slow only moderately in the second half, providing room for steel demand to continue growing for the rest of 2020.

    2
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    Gavekal Research

    Video: The Hong Kong Sanctions Regime

    As US-China tensions amp up, Hong Kong faces US actions in response to the national security law imposed by the Chinese government. This includes an end to preferential trade treatment and penalties for foreign financial institutions that transact with officials found to be undermining the city’s freedoms. In this video interview, Dan explains how the program will play out and addresses the question of whether the US government will target Hong...

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    Gavekal Dragonomics

    How To Contain A Lingering Virus

    China is seeing its highest number of daily new locally transmitted Covid-19 cases since March, and government officials are rushing to contain the outbreak. In this Quick Take, Gilliam explains how China has developed a standard containment strategy to handle this and future outbreaks while minimizing economic damage.

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    Gavekal Research

    Edging Toward A New Cold War

    The US decision to close China’s consulate in Houston is a big deal. The precise motivations are obscure but the story is not: the Trump Administration is turning up the heat on China before the US presidential election. In the next few months Washington is likely to make new moves pushing the US closer to a Cold War posture against China.

    1
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    Gavekal Dragonomics

    Macro Update: The Supply-Side Recovery

    China has rapidly bounced back from its Covid-19 lockdown, but the recovery has been an unbalanced one with supply outpacing demand. Economic policy has also turned more cautious amid exuberance in property and financial markets. In this regular chartbook, the Dragonomics team outlines how the next stage of China’s recovery will proceed.

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    Gavekal Research

    Do Bubbles Predict Or Project?

    With the second quarter data season now in full swing, the rebound in equity prices that followed the Covid-19 panic seems to have stalled. So, what happens now? In this piece, Anatole follows up on Louis’s recent efforts to define reasons for the surge in equity values and proposes a fresh explanation centered on the nature of bubbles.

    5
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    Gavekal Dragonomics

    The Marginal Impact Of Housing Renovation

    The State Council recently announced a nationwide target to renovate 39,000 antiquated residential compounds in 2020, improving accommodation for 7mn total households. In this Quick Take, Rosealea explains how the target will provide space for local governments to further tighten property policy without upsetting China’s economic recovery.

    0
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    Gavekal Research

    The Consequences Of ‘Worthless Cash’

    In the second quarter of this year, global equity markets registered their best quarterly performance in two decades. In this, the third paper of a series about the record-breaking rebound, I will consider the possibility that the present growth in monetary aggregates is leading investors to conclude that they have no alternative.

    5
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    Gavekal Dragonomics

    The Next Steps In US-China Decoupling

    As the US election approaches, the Trump Administration is intensifying pressure on China on all fronts. In this report, Dan outlines the executive-branch agencies tasked with implementing sanctions and restrictions, what they have accomplished so far, and what tools are at their disposal should Trump decide to further escalate the situation.

    0
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    Gavekal Research

    Toward A Renminbi-Gold Standard

    As the international trading and monetary order of the last 50 years continues to crumble, the endgame must be the US dollar losing its lofty position at the apex of the system. Louis and I have argued that this process began in and around 2005 as the US moved to “weaponize” the dollar, thereby ensuring the renminbi’s emergence as a competitor.

    5
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    Gavekal Research

    Unpicking The Tourism Effect

    Despite a worsening Covid-19 situation in many big developing economies and concerns over central banks’ monetization responses, emerging market investors continue to climb the wall of worry, betting that a putative “second wave” does not stymie the recoveries of developed economies and China. But another challenge for EM economies is a collapse in foreign tourism.

    0
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    Gavekal Dragonomics

    The Recovery Tapers Off

    Although Q2 GDP growth rebounded strongly after Q1’s significant contraction, sequential growth slowed considerably into June. In this Quick Take, Thomas, Rosealea, Wei and Xiaoxi report on why despite this latest rebound it will be difficult for the country to maintain its upward momentum as it moves into Q3.

    0
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    Gavekal Research

    Video: Singapore's Policy Path

    Just days after securing another five years in power at the ballot box, Singapore’s government announced that the island republic’s gross domestic product contracted a worse-than-expected -12.6% year-on-year in the second quarter. However, with large accumulated fiscal reserves, the government has considerable scope to spend in order to stimulate Singapore’s economy.

    0
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    Gavekal Research

    Pick Your Side

    The British government’s decision to block Huawei from the UK’s 5G mobile network, confirmed yesterday, is further evidence that the post-Covid world is splitting into two opposing security blocs. International distrust of China is hardening along ideological lines, spurring liberal nations to prioritize national security over economic growth.

    0
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    Gavekal Dragonomics

    A Bumpier Road To Semiconductor Supremacy

    The Chinese semiconductor industry has made substantial progress over the last year, making credible gains in both design and production—despite attempts by the US to stymie China’s advancement. In this report, Dan explains how the US has escalated its anti-China campaign and outlines the rough road ahead for the industry.

    2
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    India’s Pharma Problem

    India, the world’s pharmacy, is in danger of running out of drugs. The source of the danger is India’s deteriorating relationship with China, which provides up to 70% of the bulk ingredients for India’s pharmaceutical industry. Most Indian pharma makers hold at least two months of stock, but if the situation is not resolved, the global pharma supply chain could be disrupted.

    0
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    Gavekal Research

    Webinar: China's Capital And Bond Markets

    On Tuesday morning Thomas Gatley and Wei He joined Arthur Kroeber to discuss the Chinese equity bull market and the major reversal in the bond market.

    0
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    Gavekal Dragonomics

    How To Burst A Bubble

    Chinese equities surge ahead, and officials are worried that markets are coming dangerously close to resembling the dramatic boom and bust of 2015. In this report, Thomas makes the case that the current rally has no basis in fundamentals and outlines how regulators are trying to guide equities back to reality without causing a panic.

    0
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    Gavekal Research

    Have Equities Become A Bubble?

    Two weeks ago, Louis proposed three possible explanations for the exceptional performance of equity markets in the second quarter, one of which was that investors have taken leave of their senses. In this, the second paper of a three-part series, Louis asks if equity markets are in a bubble. And if so—crucially—what sort of bubble is it?

    13
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    Gavekal Dragonomics

    The Monetary Policy Emergency Is Over

    The Chinese government bond market has seen its biggest reversal in more than three years. Conflicting policy signals have made the priorities of China’s central bank difficult to decipher; in this report, Wei explains why it has now clearly returned to its “selective” easing mode of delivering targeted rather than broad-based economic support.

    2
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    Gavekal Dragonomics

    Local Support For Housing Is Peaking

    National housing sales growth is likely to accelerate in June following May’s rebound on the back of supportive measures from local governments and easier access to credit. In this report, Rosealea outlines how the surge in sales might peak soon due to diminishing returns from local government stimulus as well as more cautious monetary easing.

    0
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    Gavekal Research

    Is This What Capital Flight Looks Like?

    The bearish scenario for Hong Kong was that a combination of protests and Beijing’s heavy hand would trigger the flight of capital—financial and human—jeopardizing the peg and the financial system. Yet despite months of protests, and Beijing’s subsequent clampdown, the financial elements of this doomsday scenario have completely failed to materialize.

    1
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    Gavekal Research

    India Eyes Up Uncle Sam

    After the border clash with Chinese troops on June 15, India is on the verge of a strategic reorientation towards the United States that will reshape security in Asia. A full formal military alliance with the US would be a red rag to the Chinese bull, and therefore remains unlikely. But India is set to deepen its strategic partnerships with the US and other like-minded countries, especially Japan and Australia. It will also weaken its ties with...

    0
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    Gavekal Research

    Behind The Bull Run In Chinese Stocks

    Chinese equity markets are bounding higher on ebullient animal spirits. The CSI 300 index is up some 12.5% YTD in renminbi terms Monday morning. While the sequential rebound in profits from the first quarter’s dire situation has been heartening, the prospects for year-on-year earnings growth cannot justify this exuberance.

    9
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    Gavekal Research

    An Upgrade For The Jeep Portfolio

    In the Covid-19 crisis, Charles’s “Jeep” portfolio, introduced at the end of 2017 and expounded on in mid-2019, has amply demonstrated its worth, outperforming a pure equity portfolio, but with much lower volatility. In this paper, Charles reviews the Jeep portfolio once again, upgrading its components to navigate a post-Covid world.

    0
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    Gavekal Dragonomics

    Japan And Korea Split On China's Rise

    Japan and South Korea have responded differently to China’s attempts to peel them away from the US. Japan continues to align closely with its ally, while South Korea is more ready to accept that China as the regional power. In this report, Yanmei and Dan explore the logic behind these decisions and what they mean for the regional power balance.

    6
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    Gavekal Dragonomics

    The Uneven Rebound In Consumption

    The recovery of consumption in China is coming, but it will be an uneven one. In this piece, Thomas explains how the combination of recent negative surprises on public-health restrictions with positive surprises on jobs and income will shape the trajectories of different consumption categories, from food to autos to electronics.

    0
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    Gavekal Research

    Video: Singapore Beyond July's Election

    Although a new opposition political party is making Singapore’s current election season somewhat more interesting than past campaigns, the outcome is not in doubt: the ruling People’s Action Party will be confirmed in power for another five-year term. In this short video interview, Vincent looks beyond the July 10 poll to survey the economic and market outlook for the island republic.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable, June 2020

    Yesterday Louis Gave, Will Denyer and Andrew Batson joined Arthur Kroeber at the Global Investment Roundtable. They discussed the economic growth and market situation in the US, the state of the Chinese recovery, and what a post-Covid-19 world might look like.

    0
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    Gavekal Dragonomics

    The US Takes Action Against Military Fusion

    New regulations from the US Department of Commerce which go into effect on Monday could deny US-origin technologies to a broad swath of Chinese companies. In this Quick Take, Dan explores which firms are most at risk of falling afoul of these regulations and how their supply chains might be affected.

    0
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    Gavekal Research

    Towards More Of The Same?

    Investors looking at the impressive rally in global equities since mid-March have been forced to come to one of three conclusions: (i) the Covid-19-induced halt to our economies will soon fade away like a bad dream, (ii) equity investors are crazy, or (iii) a growing number of investors think the cash they hold is bound to become worthless.

    13
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    Gavekal Dragonomics

    The Future Of Hong Kong

    Whither Hong Kong? After a year of political turmoil, uncertainty about the city’s prospects is the highest it has been in decades. This 20-page DeepChina report examines Hong Kong’s historical trajectory, and concludes the city is in long-run decline—even though it will continue to be an important financial gateway between China and the world.

    0
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    Gavekal Research

    Video: Behind The Resilience Of Hong Kong's Markets

    Hong Kong has been beset by a string of bad news, from mass street protests, through Covid-19, to national security legislation of unknown scope and severity imposed by the mainland. Yet you wouldn’t guess it from looking at the city’s property market—the world’s priciest—or its stock market where several mainland tech companies are lining up to do their initial public offerings. Vincent explains the disconnect.

    0
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    Gavekal Research

    A Friendlier Supply Chain Required

    Covid-19 has revealed reliance on Chinese supply chains as a serious national security risk. But shifting manufacturing of vital goods to other parts will be no easy task, especially when alternatives like Vietnam remain so dependent on imports from China themselves. Meanwhile, the pandemic has made other potential locations—notably India—less attractive.

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