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E.g., 12-05-2021
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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.

    1
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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.

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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.

    3
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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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...

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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.

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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.

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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.

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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.

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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.

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