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    Gavekal Dragonomics

    This Time Is Different For Industrial Policy

    Chinese bureaucrats are now busily drafting plans to achieve self-reliance in high technology. But as Dan argues in this piece, this latest industrial-policy push will be different. Thanks to US restrictions on Chinese firms, notably Huawei, the private sector is already convinced that developing substitutes for imported technology is necessary.

    0
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    Gavekal Research

    Three Strikes And Still In

    In the last three weeks, investors in Chinese assets have suffered a series of shocks, with the suspension of the Ant IPO, antitrust actions against China’s tech giants, and the high-profile default of a local state-owned enterprise. Louis examines what may be going on behind the scenes, and sets out how investors should interpret these successive shocks.

    8
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    Gavekal Dragonomics

    The Macro Implications Of Microfinance

    The surprise suspension of Ant Group’s IPO on November 4 was caused by the publication of new rules on online microfinance—a tiny sector that accounts for just 0.3% of China’s banking system. In this piece, Xiaoxi explains why microfinance is of so great macro importance to China’s financial regulators, and what they will do next.

    0
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    Gavekal Dragonomics

    The Second Wave Of Bond Inflows

    There was a record increase in foreign holdings of Chinese bonds in the second and third quarters of 2020, almost all of it from private-sector investors. In this report, Wei explains why foreign investors will likely continue to buy up Chinese bonds and why Chinese authorities appear relaxed about this second wave of inflows to the bond market.

    5
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    Gavekal Dragonomics

    Cracks Appear In Local Support For Bonds

    A missed debt payment last week by a local state-owned enterprise in Henan province has created turmoil in China's corporate bond market. In this report, Xiaoxi and Wei explain why the default undermined one of the market's fundamental supports and why investors are now likely to be more discerning between provinces.

    4
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    Gavekal Dragonomics

    Full Steam Ahead

    Economic data released on Monday showed China’s continued economic normalization, with property sales and infrastructure investment outperforming expectations, industrial activity staying strong and the consumer recovery picking up. In this Quick Take, the Dragonomics team outlines why this environment is favorable for bonds and risky for equities.

    2
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    Gavekal Research

    After RCEP: A Tough Ask For Pivot 2.0

    On Sunday, China signed the Regional Comprehensive Economic Partnership. With the 15-nation trade agreement, Beijing has successfully positioned itself at the center of the region’s trade and investment networks. This will make it hard for US President-Elect Joe Biden to fulfill his pledge to place “America back at the head of the table” in international relations, at least in Asia.

    3
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    Gavekal Dragonomics

    Another Trump Attack On Chinese Stocks

    President Trump signed an executive order on Thursday barring US investments into a list of 31 Chinese firms, 13 of which are publicly listed. In this Quick Take, Dan and Thomas outline what obstacles the order faces before implementation, what impact it would have for investors and what the move means for Chinese equities both on- and offshore.

    0
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    Gavekal Research

    Webinar: China After The Recovery

    Having gone into lockdown first, China was also the first economy to emerge, and has since enjoyed a rapid rebound in industrial production and exports, reflected in financial markets. But now that the economy is back to “normal”, policymakers have returned to a conservative stance which focuses on financial stability.

    0
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    Gavekal Dragonomics

    The Internet Is No Longer Exempt

    Recent major regulatory actions have sent a strong message to Chinese internet companies: you’re not special anymore. In this report, Andrew, Dan and Ernan explain why anti-competitive practices, prudential risk and the pandemic are now prompting policymakers to regulate online firms on the same basis as their offline counterparts.

    2
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    Gavekal Research

    China’s Departure From Past Standard Operating Procedures

    China is emerging from the pandemic stronger than its big economic rivals in the West. It is an irony that the US and Europe are applying expansive Keynesian-type solutions of the type China has deployed in recent crises, but now seems to be rejecting. The result, Louis argues, may be that China starts to enjoy a "triple merit" scenario.

    2
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    Gavekal Dragonomics

    The Race To Decouple

    Both the US and China now seem eager to reduce their mutual economic dependencies. However, such a process is different for either country: Dan explains that China’s reliance on the US is narrow and technical in scope while American dependence on China is more wide-ranging. The US therefore faces more complex challenges in the “race” to decouple.

    7
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    Gavekal Dragonomics

    Housing & Construction Review 2020

    China’s property sector led the rebound from Covid-19 lockdown, but how long can the new boom last? In her annual chartbook, Rosealea explains the outlook for 2021 after a very volatile 2020. Housing policy has turned tighter after signs of overheating, which points to sales flattening and construction activity declining next year.

    0
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    Gavekal Dragonomics

    Fine-Tuning The US-China Rivalry

    In almost no area of the US-China relationship can President-elect Biden fully reverse the combative approach President Trump has put in place. Instead, writes Arthur, the Biden administration will likely fine-tune regulations to balance US economic and security interests, all while working closer with US allies—none of which will be easy.

    0
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    Gavekal Research

    Video: China's Grand Plan For The Next Two Decades

    While the US has been busy tying itself in knots over the 2020 presidential election, the Chinese government, with no electoral calendar to worry about, has quietly been setting out its grand strategy for the country’s development over the next two decades. In this video, Gilliam cuts through the impenetrable ideological jargon to identify the key themes running through Beijing’s long term policy pronouncements.

    0
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    Gavekal Research

    Webinar: US Election & Global Investment Roundtable (in French)

    Charles Gave, Louis-Vincent Gave, Didier Darcet and Cedric Gemehl delved into the results of the US election, and discussed the latest impact of Covid-19 on the global economy and markets. Additionally, they presented Gavekal’s latest research on portfolio construction.

    0
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    Gavekal Research

    Ant Stomped

    Ant Group’s US$35bn IPO was set to be the ultimate market validation of the new world of fintech and financial innovation. But by suspending Ant’s IPO at the last minute China’s financial regulators have demonstrated there is still a force more powerful than the coming wave of financial innovation: the state. It’s a lesson that big tech giants outside China may also need to take to heart, as they face increasing regulatory scrutiny from US and...

    5
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    Gavekal Research

    The New Geostrategic Pressure Point

    Investors today are overwhelmingly focused on the economic impact of the Covid pandemic and the possible effects of the US presidential election. Yet something happened over the summer that although not at all traumatic by comparison, may end up having much more far-reaching consequences for world geopolitics.

    6
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    Gavekal Dragonomics

    A Surge In Earnings

    Net profits of China’s listed non-financial firms surged in Q3, reflecting the fundamental improvement in the Chinese economy. In this Quick Take, Thomas explains why business conditions, although improved, are not as good as the net profit figures might suggest—and why Q4 will likely represent the peak of China’s corporate profit cycle.

    0
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    Gavekal Research

    Strategy Monthly: Chinese Assets After The Recovery

    China was the first economy into lockdown, and the first to emerge, enjoying a rapid rebound in industrial production and exports. Uniquely among major economies, China has already regained and exceeded pre-Covid levels of output. The speed and strength of this early recovery was reflected in financial markets, with equities rallying hard, bonds selling off, and the renminbi appreciating on heightened capital inflows.

    0
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    Gavekal Research

    Video: Hong Kong's Resilience

    Massive inflows of capital into Hong Kong’s financial system ahead of this week’s record-breaking US$34bn IPO for Chinese fintech giant Ant Group represent a major vote of investor confidence in Hong Kong’s future as a financial center, just months after many international commentators were writing the city’s obituary following Beijing’s imposition of a sweeping national security law. Vincent explores the underpinnings of this confidence.

    0
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    Gavekal Research

    The Competition For 2035 Begins

    While much of the world struggles to make it through 2020, the Chinese Communist Party is setting its sights on 2035: its annual plenum closed with a decision on its broad goals for the next 15 years. In this piece, Andrew explains how China is adapting its priorities to a less favorable international political and economic context.

    3
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    Gavekal Dragonomics

    Themes For The Coming Plan

    Party officials are gathering this week to discuss China’s 14th Five-Year Plan, a document intended to guide the country’s development from 2021 to 2025. In this report, Gilliam outlines the plan’s likely major themes and why it represents the first step in Xi Jinping’s ambitions of transforming China into a “modern socialist country” by 2049.

    0
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    Gavekal Research

    Webinar: China's Fintech Showdown

    China’s financial technology industry has been chaotic for two decades, with Ant Group launching pioneering new products while regulators and competitors play catch-up. With Ant Group ready for its IPO, the push-and-pull between the firm and regulators is grabbing institutional investors’ attention. Matthew Forney and Laila Khawaja of Gavekal Fathom China addressed this tension and also the broader impact of regulation on the country's...

    0
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    Gavekal Research

    The Three Key Prices: 10-Year Treasury Yields

    A core thesis for Louis is that in financial markets three prices matter above all others: the price of oil, the price of US dollars and the yield on 10-year US treasuries. In this second part of a three-part series, he addresses the bond market question. US treasuries are currently pricing in a highly deflationary future on both a cyclical and structural basis. Such an outcome would defy recent experience in the US bond market.

    4
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    Gavekal Dragonomics

    Macro Update: Back In Business

    China is transitioning from an imbalanced, supply-side recovery to a more broad-based upswing as consumption and private-sector investment finally join the party. But policy is also normalizing quickly, creating challenges for property and equity markets. In this regular chartbook, the Dragonomics team explains the outlook heading into 2021.

    0
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    Gavekal Dragonomics

    Banks Will Digest The Hit To Earnings

    The pandemic economy has not been very good for China’s banks, with net profits plunging an unprecedented 24% in Q2 as the government pressured them to sacrifice profits. In this piece, Xiaoxi explains why things are not actually so bad: bank profits have been hurt mainly by aggressive provisioning requirements, which are likely to ease in 2021.

    0
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    Gavekal Dragonomics

    The World’s Best Manufacturer

    The strong performance of China’s manufacturing sector reflects both the country’s success in getting the virus under control as well as its long-established manufacturing strengths. In this report, Dan explains why multinationals are reluctant to leave a country they’ve built up to be the world’s best manufacturer.

    3
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    Gavekal Research

    Different Strokes For Different EM Folks

    Last spring, key beneficiaries of the rich world’s fiscal and monetary largesse were emerging market economies, which enjoyed unprecedented policy flexibility that gave broad-based, if not universal, financial relief. The next turn in this crisis is, however, unlikely to float as many boats, as shown by divergent inflationary trends across EM economies.

    0
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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.

    0
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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.

    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.

    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.

    6
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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

    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.

    7
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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 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

    Flows Favor The Renminbi

    China’s renminbi has been appreciating in recent months, driven by heavy inflows into the onshore bond market and declining concerns about US-China tensions. The biggest risk to continued renminbi strength is the possibility that an election victory for Donald Trump sparks fears of a renewed US-China tariff war.

    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

    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

    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 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

    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

    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

    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 Dragonomics

    Risks To The Consumer Recovery

    Consumer spending in China looks to be firmly on a recovering track, with Covid-19 under control and the job market improving. But the shock to household income in the first half of 2020 could still linger over spending for a while. In this piece, Wei explains what could keep consumption from quickly regaining previous growth rates.

    0
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    Gavekal Research

    The Challenge Of Valuing Gold

    Gold ranks as the ultimate “scarcity asset”, as its value is dictated not by its utility but because it is rare. Valuing such assets is tough as there is no “underlying value” to reference and prices are driven by the immediate supply and demand situation. Yet, in periods when both government budget deficits and monetary aggregates have rapidly grown, gold has historically outperformed—and it is doing so now.

    0
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    Gavekal Research

    When Export Strength Is A Sign Of Weakness

    China’s manufacturers are back to normal, and then some. Exports and manufacturing output are running faster than their pre-pandemic trend in 2019, even as global trade is contracting. In this piece, Andrew and Thomas explain what’s driving those strong numbers, and why they are actually a sign of continued weakness in the global economy.

    2
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    Gavekal Dragonomics

    A Booming Recovery

    China’s economic recovery continues to boom ahead, with retail sales turning positive and exports continuing to outperform. In this Quick Take, Thomas, Rosealea and Wei explain why this momentum is likely to continue for several more months but might dampen towards the end of the year as credit tightens and the property market is reined in.

    7
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    Gavekal Research

    Of Gold And Gold Miners

    In recent weeks, attention has focused on the surge, and subsequent correction, in US technology stocks. Yet an asset class that has greatly outperformed the Nasdaq 100 this year is gold-mining equities. In this piece, Charles seeks to develop firmer investment rules for managing gold and gold-mining stocks within a portfolio.

    3
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    Gavekal Dragonomics

    Red Lines For Real Estate

    China’s central bank and housing ministry are putting together new restrictions on the leverage of major real-estate developers by drawing three “red lines” for the firms. In this report, Rosealea explains why regulators are targeting individual developers, as well as why she feels these red lines will have limited macro impact.

    2
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    Webinar: From Bearish To (Conditionally) Bullish

    Anatole and Will presented their views on the efficacy of US fiscal and monetary policy in response to the Covid crisis, and outlined the prospects for the economy and asset markets.

    0
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    Gavekal Research

    Pained Tales From The Hills

    On Monday, for the first time since 1975, gunshots were fired on the disputed Himalayan border between India and China.Hundreds of incidents occur along the undemarcated Line of Actual Control every year, but this year’s skirmishes are the most dangerous for at least five decades.

    0
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    Gavekal Dragonomics

    The Open-Source Moment Arrives

    Most of the US government’s efforts to hinder China’s technological progress have focused on hardware, mainly semiconductors. But software is also now a front in the US-China tech conflict. As Dan explains in this piece, those tensions could make open-source software, which is free from most legal restrictions, even more globally important.

    0
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    Webinar: Global Investment Roundtable (in French), Sept 2020

    In a turbulent economic environment, Louis sought to identify assets with “anti-fragile” qualities; Cedric deciphered the message from European markets; Didier Darcet refreshed refresh an old Gavekal framework with “Four Quadrants 2.0” and Charles moderated the discussion.

    0
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    Gavekal Dragonomics

    Victory Over The Virus

    With no new domestic cases in almost a month, Xi Jinping effectively declared victory on Tuesday in the struggle against Covid-19. In this Quick Take, Gilliam explains how China’s post-Covid landscape is shaping up for consumer services, and why Beijing is unlikely to open up internationally any time soon.

    0
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    Desperately Seeking Anti-Fragility (Part II): In The Eye Of The Beholder

    Previously, Louis outlined the four asset classes that investors appear to regard as anti-fragile, now that US treasuries no longer fit the bill. With each of these four asset classes enjoying a roaring bull-run, today Louis examines the typical life cycle that lifts an asset class from unloved hell to anti-fragile heaven.

    1
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    Gavekal Research

    Webinar: Global Investment Roundtable, September 2020

    Charles Gave, Louis Gave and Will Denyer joined Arthur Kroeber at the global investment roundtable to discuss what's going on in the global economy. Charles identified three big trends that will affect the investment environment in the long term, Will gave an in-dept update on the US economy, and Louis examined where to find assets with “anti-fragile” properties.

    0
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    Gavekal Dragonomics

    Restraint And Retaliation

    As the US government has rolled out ever more actions targeting Chinese firms, China has exercised restraint and has mostly opted not to retaliate in kind. As Dan explains, the government is taking the long view on the economy rather than pandering to nationalist outrage. But China is also developing legal tools that could be used to hurt US firms.

    5
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    Gavekal Research

    Why I Was Right To Turn Bullish

    Previously, Anatole tried to explain why he had abandoned the bearish view on equities. We will not know for a long time whether any of his explanations make sense, but Jerome Powell’s speech about the Federal Reserve’s new operating philosophy bolstered his confidence in a once-in-a-generation economic regime change.

    10
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    Gavekal Research

    Strategy Monthly: Eight Questions, 11 Answers

    With US equities once again at record highs and the Fed promising to keep rates nailed to the floor, it is time to ask hard questions of the bull market that won’t die. That interrogation is conducted by Charles and Louis Gave. In these strange times, the case for owning anti-fragile assets has rarely been stronger, they contend. Four stand out for having weathered the pandemic and should be treated seriously.

    0
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    Gavekal Dragonomics

    The Experiment With Sectoral Monetary Policy

    Central banks usually concern themselves with the economy in the aggregate. The People’s Bank of China is now experimenting with a disaggregated approach, minimizing changes in overall policy and instead directing the flow of credit to specific sectors. In this piece, Wei considers whether this experiment can work, and where rates are headed.

    0
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    Gavekal Dragonomics

    An Acceptable Amount Of Chaos

    The first batch of 18 firms on Shenzhen’s tech-oriented ChiNext board under new registration-based IPO regulations exhibited exceptional levels of price volatility this week after their Monday debut. In this Quick Take, Thomas explains why this volatility is to be expected in Chinese equities and might even be an improvement on the status quo.

    0
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    Gavekal Dragonomics

    The Dimensions Of Decoupling In 2020

    The “decoupling” of the US and Chinese economies that began with a trade war has now spread to almost all aspects of the relationship, with the Covid-19 pandemic accelerating the process. In this chartbook, Andrew and Dan show what decoupling looks like so far in 2020, using data on flows of trade, investment, technology, finance and people.

    0
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    Gavekal Dragonomics

    Understanding Dual Circulation

    Top leader Xi Jinping is now promoting a new slogan—dubbed “dual circulation”—to manage China's significant dependencies on the global economy. In this report, Gilliam explains how this does not mean the country is turning inward, but rather trying to gain more control over its long-term growth without losing its role as an international hub.

    0
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    Gavekal Dragonomics

    Climbing Up The Smartphone Smiling Curve

    Chinese advances in hardware technology have increased the country’s contribution to the global smartphone supply chain. In this report, Dan explains how Chinese firms have increased their value-added in both innovation and branding. Now, he suggests, the main headwinds for Chinese smartphones are no longer technological, but geopolitical.

    0
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    Gavekal Dragonomics

    Headwinds Build For Equities

    Chinese equities tapped on their ceiling this week but have been unable to break through, despite both surprisingly positive economic data and rebounding corporate earnings. In this piece, Thomas explains how increasingly adverse liquidity conditions are keeping a downward pressure on the markets which is unlikely to lift in the short term.

    0
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    Gavekal Research

    A Death Sentence For Huawei

    The US government has passed a death sentence on Huawei. The questions now are whether it will choose to suspend that sentence, and whether China will retaliate by punishing major US companies. The likely answers, says Dan, are no and no. Huawei is probably finished as a maker of 5G network equipment and smartphones once its inventories run out early next year.

    16
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    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.

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    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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    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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    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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    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.

    9
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    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.

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    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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    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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    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.

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    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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    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.

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    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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    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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    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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    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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    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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    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.

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    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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    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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    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.

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    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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    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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    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.

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    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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    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.

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    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.

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    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.

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    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.

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