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E.g., 14-04-2021
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    Gavekal Research

    Webinar: Global Investment Roundtable, April 2021

    In the long years between the 2008-09 financial crash and the 2020 Covid crisis the US stock market massively outperformed equities in the rest of the world. In recent quarters, however, the US market has lost its edge. Yesterday, Louis, KX and Udith weighed the merits of ex-US equities versus US stocks in a post-pandemic world.

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    Gavekal Research

    Living With The Next Covid Wave

    Global markets are looking ahead to a post-pandemic world, but Covid-19 is still very much with us. Globally, new infection rates have risen sharply since late February, reversing their earlier decline. In the last few weeks, the US has experienced an alarming uptick in infections. The European Union is struggling to contain its latest Covid wave, which in several major countries compares with November’s for severity. And across the developing...

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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.

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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 Research

    Who Will Buy India Now?

    On Tuesday, the US dollar index hit a five-month high and treasury yields maintained their relentless march higher. On the same day, the Indian rupee—this year’s best performing emerging market currency—plunged to a one-month low. A mix of tighter financial conditions and a worsening Covid-19 situation has investors reassessing the surprising notion of India as an EM haven. They are right to do so, for the macro tailwinds driving the rupee’s...

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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.

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    Gavekal Research

    Video: Pushing Less Hard On The String

    Concluding a long-awaited policy review, last week the Bank of Japan signaled that after almost a decade of pursuing titanic quantitative easing targets, it will be looking to make fewer asset purchases from now on. In this short video interview, Udith weighs the implications for Japan’s economy, its bond market, the yen, and Japanese equities.

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    Gavekal Research

    Weak Links No Longer

    Once upon a time, a steep rise in US yields coupled with capital outflows—like those we’ve seen in recent weeks—would have led to intense financial stresses in Asian emerging markets. Weak-link economies with fragile fiscal positions and precarious external balances would have been vulnerable to abrupt sell-offs and destabilizing currency depreciation. As sentiment swung risk-off, investors would have gotten badly trampled in the rush for the...

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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?

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    Gavekal Research

    Webinar: The Shape Of India's Recovery

    With the release of pent-up demand and more fiscal spending, India's economy is rebounding sharply. Its growth potential is also being raised by a new push towards privatization and an industrial policy that supports manufacturers. The question is whether India can overcome institutional lethargy and make these policies work. Tom and Udith addressed such issues and the latest market developments impacting sub-continent assets.

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    Gavekal Research

    Is The Belt And Road Turning Green?

    China is trying to clean up its domestic energy sector, but critics accuse it of exporting an outmoded and dirty energy model around the world under the guise of the Belt and Road Initiative. In 2019, Xi Jinping pledged to turn the BRI “green and clean.” Tom argues that there may have been a moderate shift towards green energy, but not a decisive one.

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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.

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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.

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    Gavekal Research

    India Macro Update: Reading The Recovery

    India is enjoying a V-shaped recovery and there are hopes that high fiscal spending and favorable base effects can push GDP growth above 10% in the coming fiscal year. The problem is that the private sector remains weak after a savage Covid-19 experience. Udith and Tom digest the macro currents and on balance conclude they would rather be in Indian equities than bonds.

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    Gavekal Research

    Webinar: Global Investment Roundtable, March 2021

    As Covid-19 vaccinations are cranked up and Congress gets ready to dole out stimulus measures, US growth expectations have risen along with inflation concerns. In response, bonds have sold off and equity markets have shuddered. In our monthly global investment roundtable, Gavekal partners discussed this confluence of events and addressed what it means for risk assets.

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    Gavekal Research

    Video: Will Bond Yields Topple Asia's EMs?

    Rising treasury yields are rarely a good thing for emerging markets, as this implies tighter financing conditions. The good news of sorts is that Asia's external position is strong due to buoyant exports, yet domestic demand has been constrained by the pandemic and a slow vaccine rollout.

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    Gavekal Research

    India’s New Industrial Policy

    Industrial policy is back in vogue, especially in India. Prime Minister Narendra Modi’s government will spend US$27bn on subsidizing manufacturing, as it seeks to forge a “Self-Reliant India.” Given India’s unhappy history of chasing self-sufficiency, this raises concerns. Yet “self-reliance” does not necessarily mean protectionism, argues Tom.

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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...

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    Gavekal Research

    Emerging Markets And Rising Yields

    As 10-year US treasury yields have pushed higher, investors have begun to reassess their enthusiasm for emerging market assets. Historically, rising US yields has seldom been accompanied by emerging market outperformance. Yet rising US yields are not necessarily negative for EMs, and there are reasons to think this time may well be different, at least for some EMs.

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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.

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    Gavekal Research

    Webinar: Emerging Markets In The Next Phase Of The Pandemic

    Emerging markets have had a strong run, fueled by floods of stimulus in developed markets. Much of that money has flowed to Asia, where export sectors have thrived on rich-world consumers’ demand for electronics and other goods. The question is whether Asian EMs will be able to keep up this outperformance as they lag far behind in the vaccination race. Our team addressed these issues, and considered whether commodity-based EMs can again have...

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    Gavekal Research

    Geared To Global Recovery

    Since the global recovery trade got going at the beginning of November, Japanese equities have performed respectably, returning some 24% in US dollar terms. But they have not outperformed. This is disappointing. With high operating leverage—the ratio of fixed to variable costs—and more than half their revenues generated overseas, Japanese corporates should be a clear play on global recovery. Indeed, the consensus-beating 3% QoQ rise in Japan’s...

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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.

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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.

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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.

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    Gavekal Research

    Video: An Indian Blowout?

    Indian risk assets have ripped in response to last week's big-spending budget, and reports that a collapse in Covid-19 cases points to the country having achieved "herd immunity" ahead of max vaccinations. In this video, Udith considers both India's public health situation and the chances of fiscal stimulus kick-starting growth without spurring an adverse financial reaction.

    0
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    Gavekal Research

    Webinar: Uncharted Territory And Portfolio Construction

    Charles has sought to codify his many investment rules into a rigorous portfolio construction framework, which includes identifying periods when returns stop being normally distributed and move into the "tails". Right now markets could be going through a phase change, and in this webinar, he explained why. He was joined by Didier, who who heads the quant team in Paris, and Louis.

    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 Research

    The Other Emerging Markets

    Until hit by a wobble in late January, emerging markets enjoyed heavy portfolio inflows over the last several months, and there are signs the risk aversion wobble is fading. Although the macro picture favors the currencies of Asia’s manufacturers, other less prominent forces could cause the currencies of non-Asian, commodity-exporting emerging markets to outperform.

    0
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    Gavekal Research

    India’s Go-For-Broke Budget

    Indian equities have risen 7.6% in the last two days, after the government of prime minister Narendra Modi threw fiscal caution to the winds in the 2021-22 budget it presented on Monday. India will attempt to spend its way out of economic crisis, with a five-year plan for deficit-fueled growth. “We have spent, we have spent and we have spent,” said finance minister Nirmala Sitharaman, after announcing big increases in capital expenditure with no...

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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 Research

    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 Research

    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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    Gavekal Research

    The Turn In Asian Inflation

    Over the last year, a collapse in oil and commodity prices slashed inflation in Southeast Asia and buoyed real interest rates. As a result, regional central banks were able to cut policy rates and mitigate the impact of massive Covid disruption. However, this disinflationary tailwind is set to abruptly reverse in the coming months as inflationary pressure inevitably builds up. Ultimately, this rise in prices may wash through the system as a “...

    0
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    Gavekal Research

    Video: The Good And Bad News For Emerging Markets

    US president Joe Biden’s planned US$1.9trn fiscal support package for the American economy may provide a metaphorical shot in the arm for at least some emerging markets, partially offsetting the negative economic effects caused by the delayed rollout of actual coronavirus inoculations. Udith assesses the conflicting forces affecting emerging economies.

    0
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    Gavekal Research

    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.

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    Gavekal Research

    Flows Will Still Favor Indian Equities

    Indian cows tend to be scrawny beasts, but India’s equity bulls have rarely looked fatter. Stocks scaled record highs last week after a 10-week binge on easy foreign money. The feeding frenzy has faded since Friday, but local benchmarks remain up 25% in US dollar terms since the start of November, and foreign investors’ appetite for Indian assets does not yet look sated. While the vigorous rebound in India’s economy from last summer’s slump may...

    0
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    Gavekal Research

    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 Research

    The Paradox Propelling Asian Currencies

    This year, the world is likely to see a sharp bifurcation in economic performance. In developed economies, mass vaccination programs enable a return to economic normality, while in emerging markets, vaccine supply and distribution problems will slow recovery. Paradoxically, EM economic underperformance will favor the outperformance of emerging Asia’s currencies.

    2
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    Gavekal Research

    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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    Gavekal Research

    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 Research

    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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    Gavekal Research

    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 Research

    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 Research

    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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    Gavekal Research

    The 10 Important Changes Of The Past Year

    Two years ago, 10-year treasury yields were falling (and trading below their 200-day moving average), oil prices were falling (and also below trend) and the US dollar was rising (and trading above its trend level). Today, the situation has reversed for all of these anchor prices in the global system. This profound change can be explained with reference to 10 tectonic shifts in the global economy.

    1
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    Gavekal Research

    The Real Bubble

    The older I get, the more I am convinced that the economy is nothing but energy transformed. Since the beginning of the industrial revolution, the story of the economy has been one of constant movement from not very efficient sources of energy, such as wood and then coal, to more “dense” and efficient sources, such as oil and nuclear fission, with the aim having been to arrive eventually at nuclear fusion.

    22
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    Gavekal Research

    India Macro Update: Long Road To Recovery

    India’s economy is starting to recover through a process that will be slow, painful and uneven. Growth may resume this quarter, but the economy is still on course to shrink by around -10% in the current fiscal year. The Covid-19 situation has stabilized and vaccines should soon be rolled out, yet local restrictions may feature right through next year. The government may finally ramp up fiscal spending, which should aid near-term growth prospects...

    0
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    Gavekal Research

    Asia’s Fully-Priced Winners

    In the league table of Covid winners and losers, emerging Asia’s equity markets rank among the winners. The perception among international investors is that East Asian societies handled the outbreak better than Europe and the US, and better than non-Asian emerging economies. On top of that, Asian governments rolled out unconventional monetary and fiscal support relatively early, and regional exporters have benefited from solid external demand...

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