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E.g., 06-03-2021
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    Gavekal Research

    From Managing Growth To Managing Debt

    China’s central bank has announced another interest-rate cut—but how many more is it prepared to deliver? The latest move reduced benchmark lending and deposit rates by 25bp, after last November’s 40bp cut, a response to the growing pressure to ease the financial strain on companies from falling prices and weak growth. Indeed, we think monetary policy decisions in China are increasingly driven not just by the classic issues of growth and...

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    Gavekal Research

    Five Corners (25 February): Global Property Wrap

    Overview: Property gets a bad rap from macro-economists as an “unproductive” asset. This mistakes its true value in modern economies, argues Anatole Kaletsky. United States: Despite recent soft housing data, the US housing market is ready to rip, say Will Denyer and Tan Kai Xian. Europe: Francois Chauchat argues that Europe’s housing market may have entered a gently rising cycle for the first time since 2007. China: Property sales have picked...

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    Gavekal Research

    5C Overview: The Importance Of Property

    Property, both residential and commercial, is the world’s oldest investment and, in the long run, the most reliable and profitable store of economic value. Like the world’s oldest profession, however, it operates in the financial shadows. Property lacks the transparency of mainstream asset classes such as equities, bonds and currencies, with no completely objective price benchmarks to measure returns reliably even in sophisticated markets such...

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    Gavekal Research

    5C China: Property's Supply-Side Correction Continues

    Over the past few months, the long-running decline in China’s housing sales has clearly bottomed and started to improve. December’s sales decline was just 4% YoY, compared to the 16% drop in July. But while this kind of improvement in previous cycles would have translated into a similar turnaround in construction activity, that has not been forthcoming this time.

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    Gavekal Research

    5C Asia: Hong Kong's Pro-Cyclical Property Roller Coaster

    Nowhere is the US Federal Reserve’s eventual decision to raise interest rates awaited with greater trepidation than in Hong Kong’s property market. The territory’s currency board link to the US dollar means that Hong Kong had no choice but to import US interest rates when the Fed cut its own benchmark short term rate to zero at the end of 2008. With safe haven funds flooding into the city’s financial system, Hong Kong banks cut their residential...

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    Gavekal Dragonomics

    Oil Insecurity Is Not Going Away

    For the world’s second-largest buyer of crude oil, the collapse in oil prices is a great bargain: the import bill for the 6mn barrels of oil shipped to China every day has halved in the space of a few months. But does now-cheap oil mean that the billions of dollars China spent buying oil assets abroad, or on loans to friendly governments of oil-producing countries, have been a waste? We doubt China’s policymakers are losing much sleep over this...

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    Gavekal Research

    A Sheep In Goat’s Clothing

    In the West, ‘sorting the sheep from the goats’ is a common metaphor for separating the good from the bad. The Chinese language, however, does not differentiate between the two species. So as the year of the sheep (or goat) approaches, it is perhaps understandable if some investors are asking which sort of beast China’s offshore dim sum bond market represents. With China’s growth slowing, with the renminbi down -2.3% against the US dollar in the...

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    Gavekal Dragonomics

    Can The New Silk Road Revive China’s Exports?

    The various New Silk Road initiatives add up to one of the biggest and most elaborate export-promotion plans in history. Yet even this new brand of checkbook diplomacy may struggle to reverse the global economic forces that have been weighing on Chinese exports.

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    Gavekal Research

    Five Corners (11 February): The Earnings Squeeze

    Overview: Charles contrasts US companies' strong accounting profits with the less impressive numbers reported in the national accounts and asks some hard questions. United States: The latest earnings season revealed a tale of two markets with multinationals and energy firms lagging while domestics surge ahead. Will and KX ask whether this can last. Europe: François argues that if eurozone GDP growth picks up to the degree that the...

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    Gavekal Dragonomics

    Will The Middle-Class Consumer Please Stand Up?

    The big beneficiaries of China’s tight job market have been lower-income rural migrant workers. This is no bad thing, but these households account for a very small share of total consumption. The real drivers of consumer spending in China, as elsewhere, are the middle classes—and their income growth has been slowing.

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    Gavekal Dragonomics

    China: More Pain Than Gain

    China is in for a rough year. The economy is in its most fragile state since 1998, at the nadir of the Asian financial crisis. Gross domestic product grew at an annualized rate of just 6.1% in the last quarter of 2014, and most key indicators suggest that the first half of 2015 is unlikely to be much better. Industrial profits are weakening sharply, which is likely to dampen wage growth and consumption—the two bright spots over the last couple...

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    Gavekal Research

    More Pain Than Gain

    China is in for a rough year. The economy is in its most fragile state since 1998, at the nadir of the Asian financial crisis. Gross domestic product grew at an annualized rate of just 6.1% in the last quarter of 2014, and most key indicators suggest that the first half of 2015 is unlikely to be much better. Industrial profits are weakening sharply, which is likely to dampen wage growth and consumption—the two bright spots over the last couple...

    0
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    Gavekal Research

    5C China: Big Dark Cloud, Small Silver Lining

    With commodity prices collapsing, the profits of China’s industrial sector are in free-fall (see [China] Profits Under Pressure). Since heavy industrial corporations make up a sizable proportion of China’s publicly-traded sector, this is bad news for listed company earnings. State-owned banks, which make up another large portion of China’s stock market indexes, also face earnings pressure as expected interest rate cuts hurt their margins and bad...

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    Gavekal Dragonomics

    Peak Coal Is Nigh

    Here’s some good news for China’s smoggy skies: the nation’s consumption of coal fell outright in 2014, for the first time since 1998. This decline—the result of a severe downturn in the most energy-intensive industries—has upended some long-held assumptions about China’s future trajectory of energy use. Last year’s unexpected combination of 7.4% GDP growth and just 2.2% growth in energy consumption means it is now very likely that China is...

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    Gavekal Research

    Why RMB Stability Vs The US$ Matters

    In China’s onshore market the renminbi is trading within a whisker of the weak side of its permitted trading band against the US dollar. Meanwhile in the offshore market the renminbi hit a two year low last Friday. Against the backdrop of a strong US dollar—in trade-weighted terms the US currency rose 9% over the three months to the end of January—these moves have prompted a number of clients to ask whether Beijing is about to steer a...

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    Gavekal Dragonomics

    Profits Under Pressure

    China looks like it should be a winner from falling commodity prices, as it is a large importer of raw materials. Unfortunately, the truth is almost exactly the opposite: lower commodity prices mean that its own energy, mining and metals firms are suffering. Add in the construction slump, and 2015 is shaping up to be a horrible year for industry.

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    Gavekal Research

    Asia’s Encouraging Currency Stability

    Three months ago to the day, the US Federal Reserve ended its outright purchases of treasuries. Three months before that, the ECB instituted negative interest rates. And whether by coincidence or causation, most commodity prices chose the past six months to unravel. The combination of these events has led to some sharp exchange rate moves. Over the past three months, commodity currencies have been taken to the woodshed: the Russian ruble is down...

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    Gavekal Research

    Five Corners (28 January): In Central Banks We Trust

    Overview: When central banks led a war on inflation in the late 1970s and 80s they kept on fighting long after the enemy was beaten into submission. They are likely to take the same approach of using overwhelming force in today’s fight against deflation, says Anatole. United States: The Swiss may have given forward guidance a bad name, but the Fed should be taken at its word, argues Will Denyer. Unlike Anatole, he thinks that interest rate...

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    Gavekal Research

    The Case For A Real Chinese Bull Market

    This report makes the case for a secular improvement in returns from Chinese equities. It does so by a political economy analysis of long-run equity market performance in the three East Asian developmental success stories most akin to China: Japan, South Korea and Taiwan. The basic argument is that when a high-growth economy shifts from policies of “financial repression” to a more liberalized financial system, a sustained period of improved...

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    Gavekal Research

    Chinese Equities: A Guide For The Perplexed

    The 60% rally in China’s main onshore stock market was clearly one of the big stories of 2014. Whether this bull market can continue is obviously one of the big questions for 2015. As attentive readers will have noticed, we at Gavekal have formed a wide range of views on this subject. This note is an effort to summarize and, we hope, clarify our various opinions.

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