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E.g., 04-12-2020
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    Gavekal Dragonomics

    Access To Global Capital Has Peaked

    After years of inflows via IPOs and foreign portfolio investment, the US is now moving to deny Chinese firms access to global capital. As a result, Thomas explains that the firms will instead have to rely on domestic markets for equity fundraising, which could cause a liquidity drag in onshore and Hong Kong equities.

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    Gavekal Dragonomics

    Eroding The Implicit Guarantee

    China’s financial regulators recently stepped in to calm a corporate bond market roiled by the unexpected default of a local state-owned enterprise. In this report, Wei argues that this reassurance does not translate to a reassertion of the implicit sovereign guarantee for local SOE debts; in fact, more local SOE defaults look likely for 2021.

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    Gavekal Dragonomics

    Huawei's Slow Strangulation

    The US government’s August decision to deny Huawei access to every advanced chip in the world was a death sentence for the firm, but its execution has not been swift. In this report, Dan outlines the uneven effects of the decision on Huawei’s different business lines and explains why any solution to the firm’s troubles will have to be political.

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    Gavekal Research

    The Fate Of Chinese Listings In The US

    Today, there are 365 Chinese companies listed on US markets. A handful of these have dual listings in Hong Kong, but for most, the US is their sole listing. Together, these 365 companies account for US$1.92trn of market capitalization. This increasingly looks like an anomaly. Why should Chinese companies choose to raise capital on Wall Street when they can tap the capital market in Hong Kong?

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    Gavekal Research

    The Importance Of The Renminbi

    In days long gone by, the yen’s exchange rate affected asset prices around the world. Today, it is not the yen that investors need to watch, but the renminbi. And in the last few months the renminbi has been strengthening, with important implications for everything from global bond yields, through energy prices, to the relative performance of US growth and value stocks.

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    Gavekal Research

    Webinar: Hong Kong Under The National Security Law

    Hong Kong has spent five months living under a tough national security law imposed on it from Beijing. The direct impact has been a sharp curtailment of opposition political activity that has sparked sanctions from the United States. Now, China has plans for more changes to Hong Kong's legal system, with a requirement for judges to be patriots. In yesterday’s webinar, Vincent Tsui, Dan Wang, Tom Holland and Simon Pritchard discussed the...

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    Gavekal Dragonomics

    How Covid-19 Changed Chinese Consumers

    China’s consumer recovery from lockdown initially lagged other economies, but now looks more sustainable. Discretionary goods are booming, and the online shakeout of retail continues, though other services and staples are less exciting. In this chartbook, Ernan presents a special Covid-19 edition of her annual review of the Chinese consumer.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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...

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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.

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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.

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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.

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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.

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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.

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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.

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