Gavekal Research

Cedric Gemehl

Dec 12th 2019

The “European Green Deal” announced with much fanfare on Wednesday was long on ambitious targets, short on implementation details about how they will be achieved. The lack of detail leaves investors to ask how Brussels’ green deal will affect the continent’s growth prospects. Here it is possible to set out some pointers.

Gavekal Dragonomics

Andrew Batson

Dec 11th 2019

Beijing has been largely successful in balancing a response to China’s economic slowdown with a need to continue its financial cleanup, but how sustainable is this delicate status quo? In this report, Andrew lays out different scenarios and the likelihood of policymakers being able to maintain their “selective easing” strategy through 2020.

Gavekal Research

Cedric Gemehl

Dec 11th 2019

While most of the rest of Europe, including Germany, has run into stiff headwinds from the slowdown in global demand, the French economy has continued to trundle along largely untroubled, with growth closely in line with potential. Cedric argues France’s economy will continue to grow in steady, if unspectacular, fashion over the medium term.

Gavekal Research

Udith Sikand

Dec 10th 2019

Japan's upward revision to GDP growth yesterday was taken as a bad omen. It suggests that shoppers went on a spree before the October 1 tax rise, and tougher times may follow. This explains why the government unfurled a big emergency fiscal stimulus last week. On the face of it, this should be negative for the yen, yet other forces are likely to keep the currency range-bound.

Gavekal Research

Vincent Tsui

Dec 09th 2019

For East Asia’s emerging economies, these are the best and the worst of times. Bad news can be seen in slowing trade, deglobalization effects and China’s structural slowdown rendering the commodity “super cycle” a memory. Yet they also benefit from good policy choices, contained energy costs and favorable liquidity conditions. Indonesia is the prime example of this low-growth, low-inflation new normal.

Gavekal Research

Will Denyer, Tan Kai Xian

Dec 06th 2019

Markets are heading into the end of 2019 on a broadly constructive note. Yet there are daunting risks hanging over 2020. And although a number of these risks may be of modest probability, the impact on portfolios should they arise will be great. This means investors are to an extent climbing a wall of worry. Fortuitously, there is a safety rope to hand.

Gavekal Research

Louis Gave

Dec 05th 2019

Who would have thought at the time of the September attacks on Saudi that the oil sector would perform so dismally in the weeks after? This has been in line with a longer term underperformance, which has led many investors to dismiss the energy sector as uninvestible. Louis examines some of the arguments underlying this belief, and comes to an intriguing conclusion.

Gavekal Research

Andrew Batson

Dec 04th 2019

The People’s Bank of China and the Bundesbank have never been known to be close. But Yi Gang, the Chinese central bank governor, is starting to sound German in his views on monetary policy. He argues that negative interest rates and quantitative easing have been a failure, and China must stick with conventional policy and positive rates.

Gavekal Dragonomics

Rosealea Yao

Dec 03rd 2019

A slew of new government policies has boosted market expectations for China’s infrastructure spending in 2020. But Rosealea counsels caution: while new measures have opened the “front door” of approved funding a bit wider, more important is that the “back door” of shadow financing remains firmly closed. A big rebound in public works is unlikely.

Gavekal Research

Anatole Kaletsky

Dec 02nd 2019

Sometimes, markets just get things wrong. Since early January investors have been panicking about a “no deal” Brexit, and I have been urging clients to buy sterling. Not because I became less gloomy about the damage that will be done to Britain by any form of Brexit, but because a “no deal” rupture is the one version of Brexit that can be confidently ruled out.

Gavekal Research

Simon Pritchard

Nov 29th 2019

After easily passing both houses of Congress, Donald Trump had little choice but to sign bills dictating the US government’s treatment of Hong Kong. Its significance will be determined by Beijing’s response, and for now that is likely to stay focused on achieving an interim trade deal that delivers a roll-back on US import tariffs.

Gavekal Research

Tan Kai Xian

Nov 28th 2019

In the third quarter, US macro-level domestic earnings fell -1.9% year-on-year. Behind this squeeze lies a weak sales picture tied to trading uncertainty and a rise in wages. In the near term, both factors could intensify. Yet there is nothing especially new in weak US profits and a ripping equity market. There are, in fact, three reasons to think this situation can be sustained.

Gavekal Research

Cedric Gemehl

Nov 27th 2019

A year after the eruption of the gilet jaune protests forced Emmanuel Macron to scrap planned fuel tax increases, the French president is facing fresh opposition to his program of structural reforms.On December 5, a coalition of labor unions is promising to down tools in an “unlimited” strike against the government’s proposed overhaul of France’s state pension systems.

Gavekal Dragonomics

Ernan Cui

Nov 25th 2019

In her annual review of the Chinese consumer, Ernan analyzes the trajectory of household spending and unearths thematic opportunities in consumer markets. After 2019’s slowdown, consumption should stabilize in 2020 as the labor market improves. Luxury goods and cosmetics are booming, but overseas tourism and traditional retail are weaker.

Gavekal Research

Charles Gave

Nov 22nd 2019

His detractors will never admit it, but Donald Trump has done much that is good for the US economy. Notably he has reduced corporate taxes and cut red tape, boosting returns on invested capital. But in calling on the Federal Reserve to cut interest rates further, he is not only making a big mistake, he is courting disaster—though not for the reason his critics believe.

Gavekal Dragonomics

Rosealea Yao

Nov 21st 2019

China’s financial regulators are squeezing funding for property developers in order to discourage land speculation and cool down property prices. In this piece, Rosealea argues the crackdown has been fairly successful, and does not pose a big risk to construction. Slightly easier demand-side policies will help offset tough supply-side restrictions.

Gavekal Research

Louis Gave

Nov 21st 2019

Recent weeks have seen a turn in the investment environment, with global equities outperforming those in the US, cyclicals outperforming growth stocks, a steepening US yield curve and a stall in the US dollar’s rally. Louis recently met with a lot of US clients and outlined his explanation for these shifts. He got some push-back and this report is the product of those deliberations.

Gavekal Research

Louis Gave

Nov 19th 2019

We live in the 21st century, and if a liquidity injection program by the Federal Reserve doesn’t want to identify as quantitative easing, then we should respect that choice, and call it by whatever name it chooses for itself—even if almost everyone now calls the US$60bn injection “non-QE QE”. However, lost within the debate over naming lies a long list of interesting “firsts”.

Gavekal Dragonomics

Lance Noble

Nov 18th 2019

Europe’s leaders are promising a more forceful approach to defending the bloc’s interests. But they do not fully subscribe to the view, widely held in the US, that China is a strategic rival and security threat. What they have been able to agree on, as Lance argues, is the need to protect the EU’s single market against Chinese state capitalism.

Gavekal Dragonomics

Andrew Batson

Nov 15th 2019

China’s data releases for October showed signs that the global downturn in electronics, and the domestic fall in car sales, are starting to fade. But the bad news is that the property and heavy industry complex is weakening. That combination means roughly stable growth for the moment, reassuring policymakers that their cautious stance works.

Gavekal Research

Tan Kai Xian, Will Denyer

Nov 14th 2019

In Congressional testimony yesterday, Jay Powell expressed optimism that US inflation will gradually rise toward the Federal Reserve’s target of 2%. If this is the case then it is reasonable to think that the US central bank could be done with rate cuts in this cycle but some way away from any rate hikes—this points to a Goldilocks of sorts.

Gavekal Research

Simon Pritchard

Nov 13th 2019

Public support for Hong Kong's protest movement has been re-energized by perceived police brutality, the local government offering no political response to the crisis and Mainland authorities delivering mixed, but slightly sinister messages about their next move. This piece assesses the political forces at play and takes a stab at explaining what comes next.

Gavekal Research

Louis Gave

Nov 12th 2019

When I wrote on the Hong Kong dollar peg back in May, there was no inkling that trust between the police and much of Hong Kong’s population would fully break down. Today, Hong Kongers are saying: “We don’t trust the police to do the right thing, or even speak the truth”. This situation causes many clients to ask: "Why has the peg not broken down?"

Gavekal Research

Cedric Gemehl, Nick Andrews

Nov 11th 2019

With the Spanish general election unlikely to produce a proper government, the country looks increasingly ungovernable. For an economy that weathered the financial crisis intact but has chronic productivity problems, this is a worry. However, the result of Europe’s fragmenting political landscape is long-term policy stasis rather than a near-term collapse of the single currency.

Gavekal Research

Nick Andrews

Nov 08th 2019

New European Central Bank boss Christine Lagarde has called on European governments to do more on the fiscal front to support eurozone growth. Only Germany has wiggle room within the EU fiscal straitjacket to launch a significant stimulus program. However, political resistance in Berlin to opening the spending taps remains formidable, and may be insurmountable.

Gavekal Dragonomics

Thomas Gatley

Nov 07th 2019

China’s industrial slowdown is not just about exports. The deep downturn in auto sales accounts for about half of the slowdown in GDP growth since 2018, Thomas estimates. Things are now starting to look less bad, and the growth drag is heading back toward zero. But autos are still not about to deliver a big boost to growth or commodity demand.

Gavekal Research

Andrew Batson

Nov 06th 2019

Was it worth the wait? Markets have been expecting the People’s Bank of China to cut policy rates ever since it introduced a new rates framework in August and promised to lower funding costs. On Tuesday, the central bank finally delivered, rolling over its one-year medium-term lending facility at 3.25%, 5bp below the previous rate of 3.3%.

Gavekal Research

Louis Gave

Nov 05th 2019

From Hong Kong to Santiago to Paris, this year has seen protestors rage against out-of-touch political elites. But does anything more than anger connect these apparently disparate movements? Louis argues that the upheavals posed by the ongoing “knowledge revolution” may explain the phenomenon, and offers investment advice on how to survive revolutionary times.

Gavekal Research

Anatole Kaletsky

Nov 04th 2019

In recent months, economic data has improved or stabilized, and political risks have receded. But now that equity prices on Wall Street have hit new records and US treasury yields have rebounded from the bottom of their post-2011 trading range, it is worth asking if the move to risk-on conditions is a temporary mood swing, or one supported by economic fundamentals.

Gavekal Research

Will Denyer, Tan Kai Xian

Nov 01st 2019

The last five years have been an era of US dollar strength. That era may now be coming to an end. After the US Federal Reserve halted its balance sheet contraction and last month resumed buying T-bills at a rate of US$60bn a month, the Fed is now printing money faster than the other central banks. As a result, relative liquidity growth now favors US dollar weakness.

Gavekal Research

Thomas Gatley

Oct 31st 2019

Chinese credit growth picked up in September, which is good news at the margin for private sector liquidity. However, a continued crackdown on shadow finance and private firms’ difficultly rolling over bond obligations will retard capital spending and lead to more bond defaults into next year.

Gavekal Dragonomics

Rosealea Yao

Oct 30th 2019

China’s property market has held up surprisingly well in 2019, but will that strength last? In her annual chartbook, Rosealea examines key market trends and explains the outlook for 2020. Flexible policy can probably continue to avoid a deep decline in housing sales, but construction activity and materials demand are almost certain to slow.

Gavekal Research

Arthur Kroeber

Oct 28th 2019

Signs are growing that the US and China will have a mini-deal on trade ready by the time Trump and Xi meet at the mid-November APEC summit. The key questions are whether opposition from US hardliners could derail the deal at the last moment, and whether the campaign to “decouple” the two economies will be knocked back if there is a deal.

Gavekal Research

Tan Kai Xian

Oct 25th 2019

Having inverted over the summer, the US yield curve has steepened sharply. In the past such a move has often presaged recession—but not always. Twice since the 1960s an inversion and steepening was not followed by recession. Then, as now, the return on invested corporate capital was higher than the cost of that capital.

Gavekal Research

Tom Miller

Oct 24th 2019

Experts predict that half of India’s demand for water will be unmet by 2030, threatening livelihoods and the country’s development prospects. Yet water scarcity need not be a disaster for India. With more efficient agricultural practices and better management, India has sufficient water resources both to feed itself and keep its economy on track.

Gavekal Research

Tan Kai Xian

Oct 23rd 2019

A series of head-spinning flip-flops in the on-again-off-again trade war over the summer has caused US businesses to delay fresh investment. As a result, business surveys have been giving readings consistent with a US recession. Yet it seems likely that any damage wrought by the trade war remains ephemeral—at least hard data suggests this.

Gavekal Research

Andrew Batson

Oct 21st 2019

China’s recent economic figures do not paint a bright picture. Yet some of the problems weighing on growth are moving closer to resolution. So how much of a bounce in the data can we expect from these positive developments? Three possible sources of good news can help answer this question: exports, domestic investment and autos.

Gavekal Research

Anatole Kaletsky, Cedric Gemehl

Oct 18th 2019

Boris Johnson has secured a revised Brexit deal and the stage is set for a key Saturday vote in the House of Commons. On balance, there is a 70% chance of the vote passing as Labour leader Jeremy Corbyn seems unable to control his Brexit-supporting rebels, while Johnson looks to have persuaded his Brexiteer wing that it could be now or never.

Gavekal Research

Charles Gave

Oct 17th 2019

Some time ago, I had gathered a team in Paris to develop a new venture that would apply macro research analysis to portfolio construction in a systematic way. Things are progressing well and I wanted to update readers on the initiative. The common thread is a rejection of forecasting and a reliance on market prices and economic data.

Gavekal Research

Vincent Tsui

Oct 16th 2019

Despite few underlying tensions being settled, the interim US-China trade deal has cheered up investors. The view has been that the US president now wants to bag a political win ahead of next year’s election and move on. This outcome should support trade-dependent Asian currencies—but perhaps not equally.

Gavekal Research

Will Denyer, Tan Kai Xian

Oct 15th 2019

Grocery shoppers get perturbed when they buy produce labeled as “organic” but get something from the agro-industrial complex. Investors, on the other hand, should welcome the Federal Reserve’s balance sheet boost, that was described on Friday as nothing more than “organic” growth. As it turns out, this is a heavily engineered offering by the custodians of money.

Gavekal Research

Arthur Kroeber

Oct 14th 2019

The US-China trade cease-fire shows that President Trump needs a quick deal: facing a soft economy and likely impeachment, he wants to bank a win as soon as possible. The two sides are moving toward a deal in November, but that will not change China's economic model or end US efforts to constrain China's technological rise.

Gavekal Research

Tan Kai Xian

Oct 11th 2019

Is the rot spreading? In the eurozone, there are signs that this year’s slump in manufacturing may be beginning to spill over to weigh on activity in the broader economy. Plenty of observers believe the US economy is destined to follow a similar path. Their fears may yet be realized, but so far there is no evidence the US economy is heading that way.

Gavekal Research

Vincent Tsui, Udith Sikand, Tom Miller, Arthur Kroeber

Oct 11th 2019

Vincent outlined EM Asia's "great moderation", as inflation is diverging from other emerging markets, creating opportunities in bonds. Udith argued that Indian growth may be bottoming out but a bad banking picture means that equities may have more downside. Tom addressed the remaking of Asian supply chains in light of the US-China trade war.

Gavekal Research

Tom Holland

Oct 10th 2019

Almost a month after missile attacks on key Saudi Arabian oil production and processing facilities pushed benchmark global oil prices up by 20% overnight, the market has moved on. Saudi Arabia has defied industry expectations by continuing to supply oil to the market in abundant quantities. The current market pricing reflects that.

Gavekal Research

Will Denyer

Oct 09th 2019

On Tuesday, Jay Powell confirmed that the US Federal Reserve will go back to growing its balance sheet once again following its meeting at the end of October. The aim is for the balance sheet to grow gradually along with the economy. While the Fed’s planned move is clearly positive for liquidity growth, it is likely to disappoint investors for two reasons.

Gavekal Research

Anatole Kaletsky

Oct 08th 2019

What will determine whether the global economic expansion and equity bull market will continue in the year ahead? The political upheavals which dominated in the past three years, such as the trade war, Iran oil sanctions and Brexit, have seemed to subside or become priced in. But new political noise is being generated by the threatened impeachment of President Donald Trump.

Gavekal Research

Nick Andrews

Oct 04th 2019

Perhaps the most remarkable thing about this year’s slump in manufacturing is how few negative spillover effects it has had on demand in the broader economy—until now. Services PMIs for both the eurozone as a whole and for Germany took a sharp turn south in September. In Germany, the deterioration is making a technical recession all but inevitable.

Gavekal Research

Will Denyer

Oct 03rd 2019

First there was the WeWork IPO failure and a string of other flops. Now the S&P 500 has slumped -3% in just two days, leaving the index down -4.6% from its July high. As a result, nervous investors are wondering whether the US may be seeing the beginning of the bursting of a bubble, just as in 2000. Are the fears justified?