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    Gavekal Research

    Webinar: The Semiconductor Endgame

    It is increasingly clear that shortages of semiconductors are both more widespread and intractable than first thought. In the near term, the fear is of cascading disruption along the Asian electronics value chain. In the medium term, however, it is possible that massive supply responses create a glut of chips that causes prices to eventually crater.

    0
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    Gavekal Research

    The Future Of Chips Is Overcapacity

    Semiconductors are tough to come by these days, and the shortage will be deep and long-lasting. Yet chips are about to turn into more of a commoditized product, just as companies make huge investments in production capacity and governments spend big to achieve self-sufficiency on national security grounds. This will lead to permanent excess capacity.

    1
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    Gavekal Dragonomics

    The Population Turning Point Gets Closer

    China’s 2020 census has confirmed that the country’s population could peak around 2025, rather than the consensus forecast of around 2030. Ernan writes that inconsistencies in the data suggest the census figures are overstated; indeed, China’s population may already have peaked in the last year, a decade ahead of schedule.

    2
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    Gavekal Research

    Video: The Chill In EU-China Relations

    Hailed as a breakthrough when it was struck back in December, the EU-China Comprehensive Agreement On Investment is in trouble, with little chance the deal will be ratified in the European Parliament amid a deep deterioration in bilateral relations. Nick examines what the political frost means for the earnings of European companies operating in China.

    0
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    Gavekal Dragonomics

    The Screws Tighten On SOE Debts

    China’s central authorities are ramping up their campaign to deal with hidden local-government debt, rolling out new rules and high-level political instructions. In this piece, Xiaoxi explains how this scrutiny will produce more defaults by state-backed firms, but also hopefully clarify the problematic legacy of implicit sovereign guarantees.

    0
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    Gavekal Research

    Ricardian Growth Is Fragile, Schumpeterian Growth Is Anti-Fragile

    Capitalism works well when activity is undertaken using David Ricardo’s law of comparative advantage and Joseph Schumpeter’s process of creative destruction. Charles argues that an era of Ricardian growth for many countries and industries is running out of road and the drivers of Schumpeterian economic transformation are shifting.

    5
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    Gavekal Dragonomics

    Coming Home For The Holidays

    The number of tourists over China’s five-day Labor Day holiday recovered to 3.2% above 2019 levels, according to the Ministry of Culture & Tourism, although tourism revenue was still 23% below 2019. In this Quick Take, Ernan outlines explains what renewed confidence in domestic travel means for China’s services recovery.

    0
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    Gavekal Research

    The Global Pivot To The Indo-Pacific

    The Indo-Pacific is at the heart of global geopolitics today. The US, UK, and European Union are all shifting their attention east. Tom argues that the new treatment of the Indian and Pacific Oceans as a single, connected space reflects a key shift in managing China’s regional power. The impact will be felt in both strategic and economic terms.

    0
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    Gavekal Research

    Webinar: Global Investment Roundtable, May 2021

    Joe Biden's enormous fiscal initiatives mark a potential sea change in the US government’s role in the economy. They may yet get watered down as the US president negotiates with more conservative members of his party, but tax and spend is clearly the new mantra in Washington DC. The question for investors is what this means for assets in the US and around the world.

    0
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    Gavekal Dragonomics

    The Steel Price Squeeze Is Here To Stay

    China’s iron and steel prices have broken through their post-financial crisis highs, the result of strong domestic demand, constrained international supply and government plans to curb steel production. In this report, Rosealea explains why prices are likely to remain elevated but slowing demand growth should keep them from rising further.

    0
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    Gavekal Dragonomics

    Biden's Tech War

    The US has changed generals in its tech war against China, but that has not brought a respite in the campaign. President Joe Biden is deploying many of the same sanctions used by the Trump administration, while also looking to invest in extending the US technological lead. In this piece, Dan surveys the state of play in the US-China tech war.

    0
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    Gavekal Research

    Strategy Monthly: China’s Multi-Dimensional Tightening

    China’s economic policymakers are using the space afforded them by a rapid economic recovery from the pandemic to refocus on a longer-term effort to redirect resources for strategic and political purposes. The immediate effect is a multi-faceted tightening across many sectors. For investors, this effort may upend old uncertainties and create new risks.

    0
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    Gavekal Dragonomics

    The Meteoric Rise Of Mutual Funds

    The size of China’s equity mutual-fund industry has doubled over the past year, a sharp rise driven by policy shifts and strong performance. While fund performance and fundraising has suffered in 2021, Thomas argues that mutual funds can still help increase the role of institutional investors in China’s volatile, retail-dominated equity markets.

    1
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    Gavekal Dragonomics

    The Antitrust Net Widens

    China’s antitrust crackdown on its internet sector is just getting started. Earlier this month, regulators brought in 34 major internet platforms and made clear that abusive business practices will no longer be tolerated. In this report, Ernan explains why firms still focused on trying to outwit the system could suffer disproportionately.

    1
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    Gavekal Dragonomics

    Curing The Coal Addiction

    China’s reliance on coal is a major hurdle to its goal of reaching carbon neutrality by 2060. The country is gradually improving its energy mix; however, despite these efforts, Rosealea argues that China’s appetite for coal and continued dependence on the energy-intensive construction complex mean that its green transition will be slow and painful.

    0
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    Gavekal Research

    Webinar: The Rise Of Regulatory Risk In China

    Risk is alive and well in China even amid a record economic recovery. Antitrust authorities are turning their attention to the rest of China's internet platforms, financial regulators are taking a tougher line and Chinese equity markets are looking a bit wobbly. In yesterday's webinar, our panel of China analysts discussed the latest regulatory developments and their implications for markets.

    0
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    Gavekal Research

    Taxing Capital

    Next week Joe Biden will set out plans to double the rate of capital gains tax for Americans making over US$1mn a year. The president’s proposal is the latest element of his initiative to levy higher taxes, from one direction or another, on the elusive earnings of multinational corporations and wealthy individuals in order to help fund higher government spending. Whatever the political merits of Biden’s plan, his multi-pronged approach will be...

    13
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    Gavekal Dragonomics

    Macro Update: Calling The Peak

    China’s post-Covid recovery continues, but Q1 should be the peak of the cycle. The strength of the rebound has given policymakers confidence to focus on longer-term issues; the result is a multi-dimensional tightening of policy. In the latest edition of our regular chartbook, the Dragonomics team explains the outlook for the economy and markets.

    0
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    Gavekal Research

    Discontinuity Risk In A Bipolar World

    For the first time in generations, the world now has two economic poles—the US and China. And they are following diametrically opposed monetary and fiscal policies. US policy is as Keynesian as you can get, while China has read the book on Wicksell and is turning restrictive. This divergence is the single most important challenge investors face today.

    3
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    Gavekal Research

    Trading The Vaccination S-Curve

    Vaccination programs around the world have gotten off the ground at widely varying speeds. But everywhere they tend to follow a similar S-curve trajectory. While most countries are still in the early stages of their vaccination programs, a very few are in their late stages, where the S-curves begin to flatten. Their experience provides an investible roadmap.

    0
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    Gavekal Research

    1994 All Over Again?

    Consider a flash back to 1994, when financial markets were mostly driven by what happened in the US, Europe and Japan. Europe was unable to tighten monetary policy while Japan was in a debt-driven deflationary bust. The US raised interest rates and sparked a seven-year bull market in the US dollar. Today, it is China which surprises everyone with a tightening.

    2
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    Gavekal Dragonomics

    The Quest For Semiconductor Sovereignty

    China is using the best-funded industrial policy in history to engineer greater self-reliance in semiconductors. Ambition and a big checkbook, however, do not guarantee success. In this DeepChina report, Dan argues that Chinese chip firms will increase their market share in some segments, but will not make it to the technological frontier.

    4
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    Gavekal Dragonomics

    The Next Move In Bond Yields

    Where are China’s government bond yields headed next? Policy and economic fundamentals point downward, but local investors fear rising inflation and leverage could still push yields up. In this piece, Wei argues the risk of a spike in yields is fading, and that any upward move would in any case be a buying opportunity.

    2
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    Gavekal Dragonomics

    The Two-Speed Recovery Continues

    Chinese GDP growth lost momentum in 1Q21 according to economic data released on Friday, with broad strength in the industrial sector offset by weakness in household consumption, particularly within services. In this Quick Take, the Dragonomics team dive into China’s Q1 economic figures and explain why they paint a picture of stability.

    0
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    Gavekal Research

    The Huarong Haircut

    In the last two weeks, the bonds of Huarong Asset Management have slumped -30% or more in price in the offshore market, as investors fear either a default or a vicious restructuring which will force them to take painful losses. Wei and Xiaoxi assess the fine political line that China’s authorities must walk to assess the likely extent of the eventual haircut.

    0
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    Gavekal Research

    The Ant And The Grasshoppers

    In the last few days, Chinese policymakers have stepped up the campaign to rein in their domestic tech giants, slapping Alibaba with fines of US$2.75bn and forcing the restructuring of Alibaba spin-off Ant Financial. Their action is in stark contrast to the inaction of regulators in western countries. But this is hardly the only contrast between China and the west.

    4
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    Gavekal Research

    A Case Study: US Long Bonds

    With recent moves at the long end of the US treasury curve causing consternation among investors everywhere, Charles dusts off his decision rules for US long bonds to see what they are telling us about the present state of the market and concludes that it is not yet time to lengthen portfolio duration.

    8
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    Gavekal Dragonomics

    Curbing Mortgage Enthusiasm

    China’s regulators are strengthening their curbs on the property market as its post-pandemic exuberance continues. In this piece, Xiaoxi and Rosealea explain the central bank’s latest moves to curb disguised mortgage lending and cap overall loan growth. The main effect of these controls will be to slow lending to households and cool housing prices.

    0
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    Gavekal Dragonomics

    The Fall And Rise Of Bond Inflows

    Foreign investors’ holdings of Chinese onshore bonds declined by RMB9bn in March, after rising RMB89.5bn in February. In this Quick Take, Wei explains how narrowing yield spreads and the decline of the renminbi against the dollar led to this sharp reversal, and what comes next for Chinese bond inflows.

    0
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    Gavekal Dragonomics

    The Taiwan Risk

    With the hardening of the US-China strategic rivalry and technology’s central role in that rivalry, the possibility of a war over Taiwan is one which must be considered. In this report, Arthur explains the importance of the island to both countries and concludes that while the risk of war remains low, it is likely to rise in the next several years.

    8
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    Gavekal Dragonomics

    The Digital Renminbi Steps Out

    The People’s Bank of China is getting closer to rolling out its digital currency, with ever-broader and more public trials of the technology. The focus has been mostly on domestic uses and security issues—but there is more to come. In this piece, Xiaoxi explains what the PBOC is doing to prepare the digital renminbi for use in international trade.

    0
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    Gavekal Dragonomics

    A Difficult Decoupling For Australian Iron Ore

    Chinese iron ore imports grew 9.5% in 2020 to 1.17bn tons despite rising tensions with Australia, China’s largest supplier. Top leaders are calling for greater supply-chain security and reduced dependence on Australian materials, but Rosealea explains that this is easier said than done given China’s immense appetite for the commodity.

    1
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    Gavekal Research

    Strategy Monthly: The Case For Ex-US Equities

    The US trade deficit cycle suggests the world is heading towards a protracted period of US dollar depreciation. With valuations outside the US relatively attractive, and deglobalization meaning ex-US equities will offer greater diversification benefits in future, investors should consider increasing their exposure to ex-US equities.

    0
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    Gavekal Research

    Abundance And Shortages

    Over decades, investors have gotten used to living in a world of plenty, in which capital, labor, commodities and knowledge have all been in abundant supply. Today, however, while the world remains awash with cheap capital, there are signs that the supplies of labor, commodities and—most ominously of all—knowledge may be facing tightening constraints. In this paper, Louis asks whether, after years of abundance, the world may be facing a...

    2
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    Gavekal Dragonomics

    What To Do About Capital Inflows

    The surge of foreign interest in China’s bond market has created a novel economic problem for its policymakers: managing sizable inflows of portfolio capital which are pushing up its currency. In this piece, Wei explains how China has tried to encourage capital outflows to balance those inflows, and why that is becoming less necessary.

    4
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    Gavekal Dragonomics

    Speeding Ahead On Vaccination

    China administered over 3mn doses of Covid-19 vaccines on Thursday, accelerating its vaccination drive from around 1mn doses per day in February and 2mn per day last week. In this Quick Take, Ernan explains why this acceleration is not enough to meet the country’s vaccination targets, as the government’s main hurdle is not production but logistics.

    0
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    Gavekal Research

    When Will Borders Reopen?

    Even as a new Covid wave sweeps across Europe, the European Union has gotten to work on a Digital Green Certificate to allow resumption of travel, within the bloc and beyond. Health passports that securely document vaccines and test results for travelers are key to opening up borders again. But as Tom explains, getting countries to agree on rules and standards will be a painful slog.

    0
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    Gavekal Dragonomics

    For Want Of A Chip

    China’s car market is starting to show the first effects of the global chip scarcity, but Thomas and Ernan write that the shortage might just be starting to bite. Supply could resume by Q3, but even a temporary drag on auto production will have material consequences for China’s industrial sector and the economy at large.

    0
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    Gavekal Dragonomics

    Slowing Down Steel Production

    Policymakers have pledged to “ensure a year-on-year decline” in steel output this year to help China achieve peak carbon-dioxide emissions by 2030, but these curbs will not reduce the country’s underlying demand for steel. In this report, Rosealea analyzes the feasibility of this target and its consequences for the steel industry.

    0
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    Gavekal Dragonomics

    What Strategic Competition Looks Like

    Last week’s diplomatic meeting between China and the US was marked by harsh rhetoric as both sides used the event to signal toughness to their home audiences. In this report, Arthur and Dan outline what policy tools Beijing and Washington have at their disposal and why the Biden administration is struggling to articulate a clear China strategy.

    1
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    Gavekal Dragonomics

    Webinar: Making Sense Of China’s Grand Plans

    The annual session of China's National People's Congress has wrapped up with the approval of a new five-year plan, a sweeping document that promises not only technological self-sufficiency but a different style of economic management in coming years. In this webinar, our China experts unpacked what these grand promises really mean, and also discussed the substantial recent correction in Chinese equities and where markets are headed...

    0
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    Gavekal Research

    Video: Conflicting Forces In The Hong Kong Market

    The Hong Kong stock market started 2021 as one of the world’s best performing, gaining 14% in the first six weeks of the year. In the weeks since, however, Hong Kong-listed equities have given back half those gains as sentiment has soured. In this short video interview, Vincent weighs the opposing forces at work in the local market to assess how they are likely to play out in the future.

    0
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    Gavekal Dragonomics

    The New Plan For Urbanization

    The 14th five-year plan outlines significant changes to China’s household registration (hukou) system. In this report, Ernan writes that this new policy direction is to reduce the significance of the system over time by reducing urban/rural inequality. Rural areas will benefit, but at a cost to China’s overall economic growth.

    0
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    Gavekal Dragonomics

    Time To Fix Credit Ratings

    2021 could be a pivotal year for the overhaul of credit ratings, which have long been an impediment to the functioning of China’s corporate bond market. The defaults of a few AAA-rated state firms have now pushed regulators into tackling long-standing problems, at a moment when cyclical and structural conditions are favorable for reform.

    0
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    Gavekal Dragonomics

    Looking Past The Base Effect

    The collapse in activity during the Covid-19 lockdowns in early 2020 has ensured some eye-popping economic data for January-February 2021. In this report, the Dragonomics team looks past base effects to find consumption and services still on track to normalize this year, while industry and property will likely cool as policy tightens at the margin.

    0
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    Gavekal Research

    When Currencies Misbehave

    In recent days, investors have had to absorb a series of troubling headlines from Europe, yet news that should be either bearish for the euro or bullish for the dollar failed to keep the euro from gaining last week. Meanwhile, the yen continues to grind lower. Why is that, and what does the inability of the dollar to rally tell us about the future?

    6
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    Gavekal Dragonomics

    There Is No Plan To Boost Consumption

    Consumption and domestic demand are everywhere in the Chinese government’s latest policy rhetoric, with high-level promises to “boost consumer spending across the board” and “create a robust domestic market.” In this piece, Andrew explains why the new five-year plan is not actually a plan to boost consumption.

    2
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    Gavekal Research

    Gold, Renminbi Bonds And The Clash Of Empires

    As the US expands its deficits to pay for pandemic relief, emerging economies that use the US dollar for reserve backing have reason to fret. China is being incentivized to accelerate development of the renminbi as both an international standard and store of value. Louis, Charles and Didier offer a potential roadmap for how renminbi internationalization may unfold.

    16
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    Gavekal Dragonomics

    The Capex Renaissance Is Coming

    2021 is set to be a strong year for capital spending by Chinese companies. In this report, Thomas explains why solid returns on assets across the industrial sector and low borrowing costs are creating incentives for firms to invest in new capacity. This should allow policymakers to cut back on spending without tanking overall investment.

    3
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    Gavekal Research

    Updating The Malthusian Constraint

    In June 2019, I argued that big shifts in the US economy and financial markets largely result from changes in the relative price of energy. If oil prices are rising faster than nominal GDP, this points to energy shortages and more of the economy’s value-added going as the “miners’ rent”. This situation points to rising inflation and contracting price/earnings ratios.

    3
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    Gavekal Research

    The Missing Target

    For four decades, every five-year plan has included a target for average GDP growth. The latest plan, presented last Friday, did not. This points to China's leadership having a more complex view of development goals argues Andrew. These now include a range of metrics including technological capability, national security, financial stability and living standards.

    0
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    Gavekal Dragonomics

    The New Normal For Infrastructure

    Officially, the normalization of China’s fiscal policy will be moderate in 2021: the government budget will narrow to 3.2% of GDP from 3.7%. But public-works spending is China’s true fiscal policy, and tighter financing does not bode well. Infrastructure investment is likely headed for a fourth year of negligible growth, and could even decline.

    2
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    Gavekal Dragonomics

    An Unrealistic Vaccine Target

    China’s government is aiming for 40% of its population to have received at least one dose of a Covid-19 vaccine by mid-2021, according to a senior health adviser. In this Quick Take, Ernan explains why such a target is unrealistic given China’s current vaccine production capacity and its obligations to other countries.

    0
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    Gavekal Research

    Chips And Cross-Straits Tensions

    Taiwan’s position at the core of the global semiconductor industry has never looked more secure: it is now the undisputed leader in advanced chip manufacturing. But does that success increase the risk of military aggression from China? In fact not. As Dan argues in this piece, semiconductors are not a plausible trigger for a hot conflict.

    5
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    Gavekal Research

    Strategy Monthly: The Threat Of Rising Inflation And Yields

    The roll-out of vaccines in the US is upending the investment environment, as the focus shifts beyond the pandemic to full-throttled economic recovery. With both monetary and fiscal policy set to remain loose, nominal growth could soon rip. Hopes for “normalization” have driven up inflation expectations and freaked out bond investors. Those getting fixed interest are right to be unnerved, as production capacity is fairly tight, inventories are...

    0
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    Gavekal Dragonomics

    The Fate Of A Liquidity-Driven Rally

    The writing is on the wall for China’s post-Covid bull market as the underlying credit and profit cycles that typically drive prices over the medium term are turning down in 2021. In this report, Thomas explains why liquidity flows can trump these fundamentals for a while, but not indefinitely.

    0
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    Gavekal Dragonomics

    To Hold Back The Tide Of De-Industrialization

    China’s government is focusing on a new economic metric: the manufacturing share of GDP, which looks to feature in the next five-year plan. Rather than accept de-industrialization, it wants “stability” in manufacturing. In this piece, Andrew explains why China is worried about the fall in the manufacturing share, and whether it can be stopped.

    2
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    Gavekal Research

    A Discussion On Treasury Yields

    In recent days, long-dated US treasury yields have made a clear move higher. Unless there’s a violent turnaround in the coming days, February will mark the seventh consecutive month of flat-to-negative returns for treasuries This is an important development, with potentially far-reaching investment implications. Anatole and Louis discuss the outlook for yields, and the consequences for asset prices.

    11
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    Gavekal Dragonomics

    Stuck At Home For The Holidays

    China spent the Lunar New Year indoors and online. Travel over the seven days of the holiday declined 77% from 2019 levels, but sales of major retailers increased by 4.9%. In this Quick Take, Ernan explains how holiday restrictions and the January Covid outbreak in north-eastern China has depressed services and boosted retail sales.

    0
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    Gavekal Research

    China Versus The Anglosphere

    Beijing’s ability to weaponize its global trade power is concentrating minds from Washington to Canberra. On Tuesday it was reported that China has proposed controls on the production and export of rare earths. This threat is the latest example of why reducing critical dependence on Chinese trade is now a strategic priority for many countries, in particular those in the Anglosphere.

    13
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    Gavekal Dragonomics

    The Next Steps On Hidden Local Debt

    In 2021, China’s central government is gearing up to once again tackle the hidden debts of local authorities, toughening its stance after a couple of lax years. As Wei explains in this piece, the solution is likely to be a mixed one, combining limits on new borrowing, partial bailouts of some debt, and a lot of kicking the can down the road.

    0
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    Gavekal Research

    The Importance Of Taiwan

    Across Europe and the US, car plants are getting shuttered because of a shortage of microchips from Asia. This storm is centered on Taiwan, which for decades has been an unsung contract supplier of electronics and chemicals. For those who had not noticed, its firms now dominate high-end global chip production and current industry dynamics mean this grip is only likely to intensify.

    4
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    Gavekal Research

    A New Super-Cycle?

    A surge in commodity prices has led to hopes for a new “super-cycle”. Bulls say that commodities have been in the doghouse for a decade, ensuring limited new capacity additions, yet demand is now getting supercharged globally by easy monetary and fiscal policies. Bears retort that commodity investors have a case of the vapors, as the next phase of global growth, especially in China, will be less resource-intensive.

    5
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    Gavekal Research

    Vaccines, Efficacy And Variants

    Despite volumes of new information and the lightning creation of vaccines promising a path out of the pandemic, uncertainty remains. Almost daily we are bombarded with a mix of good news (the vaccines work really well!) and bad (new mutations resist vaccines!) that make it hard to know whether we should rejoice or despair. This note provides a framework for assessing these persistent uncertainties.

    1
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    Gavekal Dragonomics

    Propping Up Property Sales

    Housing sales growth is holding up well despite financial tightening and hawkish policymaker rhetoric. In this report, Rosealea explains why regulators are pressuring developers to cut prices, while increased household savings means more families can take advantage of these discounts. 2021 will therefore likely be a strong year for housing sales.

    0
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    Gavekal Dragonomics

    The Profit Cycle Has Peaked

    China’s corporate profits rebounded in 2H20 after a horrific start to the year, but the profit cycle is now close to its peak. Looking past huge base effects, Thomas believes underlying growth will fade toward 10% in the first half of this year and zero in the second—not a bad macro outcome, but slower profits usually weigh on equity markets.

    0
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    Gavekal Research

    Six Reasons To Stay Bullish

    Is the recent speculative mania the beginning of the end of the post-2009 bull market in stocks? Or is it only the end of the beginning? Anatole argues that today’s speculation is reminiscent of the later stages of dot-com bubble, but he remains a confirmed bull on global equities. In this paper he offers six reasons why this is no contradiction.

    5
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    Gavekal Dragonomics

    Falling Behind On Vaccination

    Despite its early successes in containing Covid-19, China is lagging Western countries in rolling out a mass vaccination program. In this report, Ernan explains why Chinese policymakers are not treating mass vaccination as an urgent issue and why a slow vaccine rollout could result in a drag on economic growth in late 2021.

    0
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    Gavekal Dragonomics

    The Crackdown On Fintech

    Finance has been an exciting new frontier for China’s internet companies, as lax regulation and technological changes enabled a few years of rapid growth. This frontier era for fintech is now over. As Xiaoxi explains in this piece, China’s financial regulators are set on controlling what they now view as the overly risky growth of the sector.

    0
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    Gavekal Research

    Vaccine Slippage

    It is looking likely that most countries will miss their Covid-19 vaccination targets for 2021. This creates a risk of slower than expected economic growth, especially in Europe which take half a year to emerge from its double-dip recession. Moreover, any activity dependent on international travel or large-scale gatherings will remain severely depressed until well into 2022.

    3
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    Gavekal Dragonomics

    Explaining The Interbank Spike

    Short-term interbank rates surged to their highest levels in more than two years on Thursday after a surprising move by the central bank to drain liquidity from the market. In this Quick Take, Wei explains why this liquidity tightening does not signal a change in monetary policy, and why rates should return to normal over the coming weeks.

    0
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    Webinar: French-Language Webinar, January 2021

    With Europe being hit hard by a second wave of Covid-19 and facing fresh lockdowns, Charles and Cedric assessed the outlook for the region’s growth and inflation in both the short and medium term. The webinar also focused on portfolio construction work being done by our Paris team: quantitative head of research Didier and Charles trained their sights on behavioral finance and suggested a route map for managing money in a “post-Keynesian” world.

    0
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    Gavekal Dragonomics

    Webinar: The Outlook For China In 2021

    China enters 2021 having achieved a world-leading recovery, but now faces a tricky balancing act to secure its economic trajectory. Ernan, Rosealea and Wei discuss how the authorities are responding to the rebound in Covid cases, what their strategy is for a frothy property market, and how they will balance growth with financial stability.

    0
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    The Sinification Of The Hong Kong Market

    Even though the Hang Seng index fell -2.55% on Tuesday, Hong Kong is still the world’s best performing major stock market year-to-date. In Hong Kong’s media the run-up is attributed to waves of mainland Chinese money flowing into the city’s equities. In reality, Connect flows have not been the biggest force driving Hong Kong stocks higher in recent weeks. But structurally, flows of mainland capital are only going to become increasingly important...

    0
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    Supply-Chain Risks For The Covid Vaccine

    The race to vaccinate the world in the wake of the Covid-19 pandemic will be one of the most complex projects ever attempted. Most developed economies aim to fully vaccinate their adult population by year’s end. Dan outlines the manufacturing and logistical challenges involved the vaccine rollout

    0
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    Gavekal Dragonomics

    Macro Update: Beyond The Boom

    China’s unbalanced, industry-driven recovery from Covid has been very strong but is probably close to its peak. Meanwhile, renewed outbreaks are further delaying the normalization of consumer spending and services. In the latest edition of our regular chartbook, the Dragonomics team explains how these tensions will affect the economy in 2021.

    0
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    Restraining The New Fad In Tech

    The Chinese government has responded quickly and negatively to community group buying platforms, the latest business-model fad among China’s consumer internet companies. In this report, Ernan explains why subsidized pricing on the platforms has drawn regulatory attention and how this will affect future growth prospects for China’s big tech firms.

    0
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    Risks In The Biden Era

    In December, Anatole outlined 10 disparate risks that could derail the bull market in 2021. That was before the Democrats won full control of the US government, paving the way for approval of Joe Biden’s new super-size stimulus package. In light of the developments over the last month, Anatole reassesses his 10 risks.

    9
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    Webinar: Global Investment Roundtable, January 2021

    A Democratic US administration is set to control all arms of the US government for the first time since 2010. Will this mean a fiscal blowout, causing big changes in the pricing of treasuries and the US dollar? Louis, Anatole and Will assess the possibilities.

    0
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    Webinar: Europe’s Cruel Winter

    As the pandemic intensifies across Europe growth prospects in the first quarter are dimming, but investors are focused on a potential economic reopening by the spring. In yesterday’s webinar, Anatole Kaletsky, Nick Andrews and Cedric Gemehl discussed whether markets are overly optimistic since the European Union seems to have botched its vaccine procurement strategy.

    0
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    The Logos, Idiotes And Demagogues

    Charles revisits the idea of the Greek "logos", "idiotes", demagogues and citizens, and how the Greeks believed that those who controlled the logos—the language used to describe the world—ipso facto controlled the political system. Problems arise when a new, competing logos started to emerge.

    8
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    Gavekal Dragonomics

    Small Borrowers Still Struggling

    Even after a dramatic economic recovery, many of China’s smallest businesses are still struggling. In this piece, Xiaoxi shows how the government’s financial-support measures did little to improve small businesses’ access to financing, which is already tightening. But the policies are helping banks avoid a potential spike in bad loans.

    0
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    Biden’s United Front Against China

    As the outgoing Trump administration exits with a flurry of executive actions directed against China, Beijing is not sitting around hoping for Joe Biden to spark a new era of détente with the US. The recent tightening of control in Hong Kong shows that President Xi Jinping has no intention of giving an easy early ride to a leader who has pledged to build a “united front of US allies and partners” to constrain a resurgent China. The European...

    1
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    Gavekal Dragonomics

    A Two-Speed Recovery

    China’s Q4 GDP growth surpassed pre-Covid rates, with housing and manufacturing leading while services lagged and infrastructure investment slowed. In early 2021, this divergence is likely to continue as consumers stay home for the Chinese New Year and poor credit growth drags on infrastructure investment.

    0
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    For Exports, It’s Stronger For Longer

    China’s exports have been boosted by two side effects of the Covid-19 pandemic: a shift of consumer spending to goods from services, and the failure of manufacturing in other countries to get back to full capacity. How long can those advantages last? Thomas argues they will continue to boost exports through the first half of 2021.

    2
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    New Ceilings For Property Financing

    China’s policymakers are expanding their restrictions on bank financing of the property sector, imposing limits on mortgage lending in addition to curbs on borrowing by developers. In this report, Rosealea explains why the new regulations do not shift her expectations of flat property sales and a modest decline in construction activity in 2021.

    2
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    The Squeeze Of Old Hong Kong

    Last Wednesday Hong Kong police arrested scores of pro-democracy activists for joining forces to try and win a local parliamentary election and thereafter block government legislation. The use of a tough new national security law to suppress routine political organization threatens more international opprobrium that will further cut the city off from the Anglosphere.

    3
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    Covid Headaches Continue

    China diagnosed 527 new cases of Covid-19 in the first 10 days of 2021, mostly in Hebei province, in the biggest local outbreak since July 2020. In this Quick Take, Ernan explains why this outbreak is challenging China’s Covid-19 playbook and why its timing is particularly concerning ahead of the Chinese New Year.

    0
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    Strategy Monthly: Darkness Before Dawn? The Covid Vaccine Outlook

    As a new wave of Covid infections grips major economies, and social restrictions return, the hopes for a return to pre-pandemic normal rest on the rollout of vaccines. With vaccine production ramping up, most developed economies could reach herd immunity by late in 2021. But many emerging economies will take longer, and several risk factors could still derail the rollout.

    0
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    Portfolio Construction Over The Next Two Years

    On Thursday, Anatole set out his view that undivided Democratic Party control of both the executive and legislative branches of the US government opens the door for unconstrained Keynesian stimulus, which will be highly positive for the US economy and equities. It will probably come as little surprise to Gavekal clients that I should dispute whether such unconstrained Keynesianism will be good news either for the economy or for US equities

    4
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    Gavekal Dragonomics

    Not As Hawkish As Feared

    The People's Bank of China is one of the world’s most hawkish central banks—but just how hawkish will it be in 2021? Bond market investors worry that the PBOC, eager to normalize policy, will be pushed into hiking rates by higher inflation. In this piece, Wei argues those worries are misplaced, and that bond yields have more room to fall.

    0
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    The Renminbi Races Out Of The Starting Gate

    The renminbi gained 1% against the US dollar in the first two trading days of 2021, leading China’s central bank to signal a pushback against appreciation by tweaking foreign-lending limits. In this Quick Take, Wei explains that such moves are likely to slow than stop the currency’s gains, as fundamentals still favor the renminbi.

    0
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    Gavekal Dragonomics

    Decoding The Assault On Alibaba

    The antitrust investigation into Alibaba, following close on the heels of the cancellation of the Ant IPO, has raised big questions about the changing political environment for Chinese internet companies. In this piece, Andrew considers the best- and worst-case scenarios, and concludes that at a minimum, growth prospects have dimmed.

    8
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    Gravity Or Liquidity? Which Will Win In 2021?

    In hindsight, 2020 showed that if three conditions are met, a stock can break free from the earth’s gravity, and lift off for destinations only sci-fi writers could have imagined. Consequently, one of the most important questions for investors in 2021 is whether such inter-galactic travel can continue. Or will the coming year instead see a shift in investor behavior, with gravity once again exerting its downward pull?

    5
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    Goldilocks And The 10 Bears Of 2021

    In recent years Anatole has written a series of articles describing 10 key risks for investors. He readily accepts that this year’s exercise was rendered redundant by the emergence of Covid-19 in January. Next year, however, he believes that a greater range of factors could weigh on markets and in this piece assesses them one by one.

    0
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    Gavekal Dragonomics

    A Looming Correction For Iron Ore

    Iron ore prices hit an eight year high in early December in response to a tight steel market. Rosealea writes that this uptick in steel demand, likely due to China’s strong steel-intensive export figures, is unsustainable and should subside in the new year—resulting in a correction for iron ore prices in the coming months.

    0
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    The Boom Of 2021

    As he gazes into next year, Charles has reviewed some of his most trusted indicators and found that the US is moving towards an inflationary boom that should mean stronger growth, rising inflation and higher bond yields. If the Federal Reserve acts to crimp this adjustment in the price of money, he warns that the US dollar could tank.

    10
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    Gavekal Dragonomics

    The Road To Policy Normalization

    China’s economy is almost back to normal after Covid-19, and that means economic policy will also normalize: the question is not whether, but how. In this piece, Wei argues that the most likely policy settings for 2021 will be somewhat tighter fiscal policy and a deceleration in total credit growth, but no increase in policy interest rates.

    2
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    The Lure Of Korea In A Rotation

    Hopes for a return to normality as Covid vaccines get rolled out have helped fuel a global rotation from growth to value equities, and from previous “Covid winners” to “Covid losers”. Due to its better pandemic management, clear policy headroom and exposure to the electronics sector, Asia has generally been a Covid winner. Hence, Udith Sikand and myself have argued that beaten-up non-Asian markets are the way to play this rotation (see Asia’s...

    0
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    A Reluctant Executioner

    MSCI announced on Tuesday the removal of 10 Chinese securities from its indexes in response to a US executive order. In this Quick Take, Thomas explains why MSCI’s narrow interpretation of the order leads to risk of more Chinese securities being added to the list, and how the decision adds to existing headwinds for Chinese equities.

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