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Gavekal Research
Will Denyer
Sep 25th 2020
Video: Behind The Market's Mood Swings
In recent weeks some of the biggest US equity winners since the start of the Covid-19 crisis have appeared to run out of steam, as the Federal Reserve abstained from stepping up its asset purchases. Meanwhile, Congressional gridlock seems to stand in the way of renewed stimulus for American consumers. Will is not too concerned, and in this interview points out that the Fed still has ample ammunition, and that the strength of the US recovery...
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Gavekal Research
Udith Sikand
Sep 25th 2020
EM Currencies At A Pivot Point
Emerging market economies are heavily impacted by their currency’s level against both the US dollar and the Chinese renminbi. As the dollar is a funding currency, most EMs thrive when it is weak. In contrast, China is both a competitor and a key export market for EM economies, and so a weak renminbi poses a deflationary threat. Since late May, emerging markets have faced the ostensibly benign situation of a weaker US dollar and a stronger...
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Gavekal Research
Andrew Batson, Dan Wang
Sep 24th 2020
Webinar: Taking Stock Of US-China Decoupling
In yesterday’s webinar, Andrew Batson presented an overview of where the Chinese economy is going and how the relationship with the US is evolving, and Dan Wang addressed recent US actions in the technological rivalry between the two countries, particularly the latest executive orders on WeChat and TikTok.
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Gavekal Dragonomics
Thomas Gatley
Sep 24th 2020
The China Inc. Annual Report 2020
After a historically disastrous quarter, Chinese companies are now enjoying a V-shaped rebound—but what is driving this bounce, and how sustainable is it? In his annual chartbook, Thomas answers these and other questions, dissecting the impact of Covid-19 on China’s corporate sector across sales, margins, profits, cashflow, capex and leverage.
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Gavekal Research
Will Denyer
Sep 24th 2020
Four Exaggerated Concerns
As if markets weren’t nervous enough, US policymakers have been fueling the nervousness. On Wednesday, a series of remarks spotlighted a number of the main concerns currently troubling investors, including that the US Federal Reserve is out of ammunition, and that disputes over the result of November’s upcoming presidential election could drag on into the new year, plaguing asset markets with additional uncertainty. This focus appeared to...
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Gavekal Research
Cedric Gemehl
Sep 23rd 2020
Lockdown-Lite
A series of controls have been announced by European countries in reaction to sharp increases in the numbers testing positive for the Sars-CoV-2 virus.This has raised fears of renewed lockdowns and economic havoc. But it appears European policymakers are opting for a lockdown-lite approach to public health restrictions in order to minimize the economic damage.
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Gavekal Research
Louis Gave
Sep 22nd 2020
Illiquidity And Creative Destruction
Covid came as a shock to the world, but in many cases it is merely accelerating fundamental trends that were already unfolding anyway. This probably shouldn’t be a surprise. If there has been one constant theme in Gavekal’s research over the last 15 years or so, it is that we are living in an age of accelerating creative destruction.
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Gavekal Research
Louis Gave
Sep 21st 2020
Don’t Waste Time Analyzing The US Election
Over the next six weeks, investors will spend hours of mental anguish and spill lakes of agonized ink attempting to analyze the outcome of the US presidential election. Will it really be time well spent? Louis isn’t sure.
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Gavekal Research
Dan Wang
Sep 21st 2020
Caution Prevails In US Attack On Apps
Last month President Trump issued orders that threatened massive disruption to two of China’s biggest technology companies. But the Commerce Department’s final decision on WeChat was less extreme than feared, and Trump’s blessing of a deal to avert a ban on TikTok signals a promising shift in the political calculus.
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Gavekal Research
Yanmei Xie
Sep 18th 2020
Video: The US Fiscal Seesaw
There are some signs that Democrats and Republicans are inching towards a new spending deal to provide "enhanced" benefits to struggling companies and unemployed Americans. Yanmei argues that such a resolution would certainly buttress demand going into the winter season but a "no deal" outcome would not necessarily spell disaster for a US economy that is learning to live with Covid-19.
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Gavekal Research
Vincent Tsui
Sep 18th 2020
Asia’s Winners In The US-China Tech War
The US government has stepped up its campaign against China’s leading technology companies, and already the measures against Huawei are taking effect. This threatens to severely disrupt global electronics supply chains, but creates opportunities for companies elsewhere in Asia. Vincent assesses who stands to benefit.
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Gavekal Research
Udith Sikand, Tom Miller
Sep 18th 2020
Webinar: Embattled India
India has taken a bigger economic hit from the pandemic than any other major economy, exacerbating a slowdown that was already underway. In addition, India is engaged in a high-stakes standff with China over its Himalayan border, which may force an economic decoupling of the two countries.
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Gavekal Research
Cedric Gemehl
Sep 18th 2020
Riding Europe’s Second Wave
The latest Covid figures from Europe make sobering reading, with countries including France, Spain and others seeing pronounced second waves of new cases. Equity markets, however, have reserved judgment. Yes, the rebound that started in mid-March has been stalled for the last two months as infections have mounted. However, European markets have not sold off significantly, despite this month’s US volatility. And an examination of the opposing...
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Gavekal Dragonomics
Wei He
Sep 17th 2020
Risks To The Consumer Recovery
Consumer spending in China looks to be firmly on a recovering track, with Covid-19 under control and the job market improving. But the shock to household income in the first half of 2020 could still linger over spending for a while. In this piece, Wei explains what could keep consumption from quickly regaining previous growth rates.
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Gavekal Research
Will Denyer
Sep 17th 2020
The First Meeting Of The Fed’s New Era
On Wednesday, the Federal Open Market Committee concluded its first meeting after Federal Reserve chairman Jay Powell last month revised its strategic policy framework. The new framework boils down to a temporary increase in the Fed’s inflation target to “make up” for past shortfalls.
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Gavekal Research
Charles Gave, Louis Gave
Sep 16th 2020
The Challenge Of Valuing Gold
Gold ranks as the ultimate “scarcity asset”, as its value is dictated not by its utility but because it is rare. Valuing such assets is tough as there is no “underlying value” to reference and prices are driven by the immediate supply and demand situation. Yet, in periods when both government budget deficits and monetary aggregates have rapidly grown, gold has historically outperformed—and it is doing so now.
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Gavekal Research
Andrew Batson, Thomas Gatley
Sep 16th 2020
When Export Strength Is A Sign Of Weakness
China’s manufacturers are back to normal, and then some. Exports and manufacturing output are running faster than their pre-pandemic trend in 2019, even as global trade is contracting. In this piece, Andrew and Thomas explain what’s driving those strong numbers, and why they are actually a sign of continued weakness in the global economy.
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Gavekal Research
Louis Gave
Sep 15th 2020
Death, Taxes And Covid-19: Things That Cannot Be Avoided
Six months after the first western countries went into lockdown, data suggest that unless imposed very early on, lockdowns did little to avert excess deaths. With weekly death rates in many western countries now running close to decade lows, Louis argues that this leaves politicians in an awkward spot, with one of three possible policy paths.
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Gavekal Dragonomics
Thomas Gatley, Rosealea Yao, Wei He
Sep 15th 2020
A Booming Recovery
China’s economic recovery continues to boom ahead, with retail sales turning positive and exports continuing to outperform. In this Quick Take, Thomas, Rosealea and Wei explain why this momentum is likely to continue for several more months but might dampen towards the end of the year as credit tightens and the property market is reined in.
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Gavekal Research
Tan Kai Xian
Sep 15th 2020
Positioning For A Yield Curve Steepening
Little about the Covid-19 recession has been “normal”, including shifts in the US yield curve. Contrary to expectations at the end of a cycle, the spread between 10-year and three-month treasury yields "steepened" by just 109bp from the bottom. At the same time, the Fed’s hugely expanded quantitative easing program has boosted demand for long-dated treasuries, which continues to compress yields. So what gives?
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Gavekal Research
Anatole Kaletsky
Sep 14th 2020
A British Mad Man
The world’s worst performing major currency, stock market and economy have all been located in Britain since Boris Johnson was reelected last December. This is not surprising. With hindsight, his decision to outlaw any possible extension of the Brexit transition period as soon as he was reelected fully justified the switch from bullish to bearish on sterling assets that I recommended immediately after this announcement.
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Gavekal Research
Louis Gave, Didier Darcet
Sep 11th 2020
The Trouble With Covid Testing
Last week, professional rugby started up again in France. The authorities have decreed that if any team finds that three or more of its players test positive for Covid-19, its games must be played at a later date. This ruling is being rigidly enforced even though in reality a player who tests positive has less than a 50% probability of actually having the disease.
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Gavekal Research
Charles Gave
Sep 11th 2020
Of Gold And Gold Miners
In recent weeks, attention has focused on the surge, and subsequent correction, in US technology stocks. Yet an asset class that has greatly outperformed the Nasdaq 100 this year is gold-mining equities. In this piece, Charles seeks to develop firmer investment rules for managing gold and gold-mining stocks within a portfolio.
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Gavekal Dragonomics
Rosealea Yao
Sep 11th 2020
Red Lines For Real Estate
China’s central bank and housing ministry are putting together new restrictions on the leverage of major real-estate developers by drawing three “red lines” for the firms. In this report, Rosealea explains why regulators are targeting individual developers, as well as why she feels these red lines will have limited macro impact.
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Gavekal Research
Will Denyer, Anatole Kaletsky
Sep 11th 2020
Webinar: From Bearish To (Conditionally) Bullish
Anatole and Will presented their views on the efficacy of US fiscal and monetary policy in response to the Covid crisis, and outlined the prospects for the economy and asset markets.
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Gavekal Research
Tom Miller, Udith Sikand
Sep 10th 2020
Pained Tales From The Hills
On Monday, for the first time since 1975, gunshots were fired on the disputed Himalayan border between India and China.Hundreds of incidents occur along the undemarcated Line of Actual Control every year, but this year’s skirmishes are the most dangerous for at least five decades.
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Gavekal Research
Tan Kai Xian
Sep 10th 2020
Video: Assessing The Midwest Outbreak
While the pandemic continues to ravage the US, the last month has seen rates of infection decline across most of the country. That situation has recently reversed in some low-population Midwestern states, but on balance the US has learnt to live with Covid, and therefore a resurgence in the fall will not result in the kind of disruption seen in March and April.
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Gavekal Research
Udith Sikand, Tom Miller
Sep 09th 2020
India Macro Update: The Great Covid Crash
India has taken a bigger economic hit from the pandemic than any other major economy. After reopening its economy in June, business activity is again weakening as the surging number of Covid-19 cases raises the chance of more localized restrictions. Udith and Tom evaluate the government's response and give a prognosis for the economy.
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Gavekal Dragonomics
Dan Wang
Sep 09th 2020
The Open-Source Moment Arrives
Most of the US government’s efforts to hinder China’s technological progress have focused on hardware, mainly semiconductors. But software is also now a front in the US-China tech conflict. As Dan explains in this piece, those tensions could make open-source software, which is free from most legal restrictions, even more globally important.
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Gavekal Research
Tan Kai Xian
Sep 09th 2020
Growth Scare? Or Rotation?
After a three-day rout that has seen the US Nasdaq 100 index sell off by almost -11%, fear is in the ascendant. At this point a reality check may be a valuable exercise. Whatever the proximate trigger for the slump, the deep sell-off has been confined mainly to large-cap tech stocks, and is not generalized across the market. Moreover, there are reasons to believe the picture for the US economy and earnings is set to improve.
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Gavekal Research
Charles Gave, Louis Gave, Cedric Gemehl, Didier Darcet
Sep 09th 2020
Webinar: Global Investment Roundtable (in French), Sept 2020
In a turbulent economic environment, Louis sought to identify assets with “anti-fragile” qualities; Cedric deciphered the message from European markets; Didier Darcet refreshed refresh an old Gavekal framework with “Four Quadrants 2.0” and Charles moderated the discussion.
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Gavekal Research
Cedric Gemehl, Nick Andrews
Sep 08th 2020
Better Days For Europe’s Domestic Plays
It is hardly surprising that euro strength is generally bad for European exporter stocks and good for domestically-focused firms; or that exporter-heavy markets, like Germany, tend to lag at such moments. We saw this in 2017, when the euro rose almost 12% against the dollar between April and August, spurring a -2.4% fall in the DAX and a 0.7% gain in the broad Eurostoxx. So how to explain this year’s topsy-turvy markets, where the sprightly DAX...
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Gavekal Research
Louis Gave
Sep 08th 2020
Desperately Seeking Anti-Fragility (Part II): In The Eye Of The Beholder
Last month, Louis outlined the four asset classes that investors appear to regard as anti-fragile, now that US treasuries no longer fit the bill. With each of these four asset classes enjoying a roaring bull-run, today Louis examines the typical life cycle that lifts an asset class from unloved hell to anti-fragile heaven, and asks what could plunge the present favorites back down into the depths again.
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Gavekal Dragonomics
Gilliam Collinsworth Hamilton
Sep 08th 2020
Victory Over The Virus
With no new domestic cases in almost a month, Xi Jinping effectively declared victory on Tuesday in the struggle against Covid-19. In this Quick Take, Gilliam explains how China’s post-Covid landscape is shaping up for consumer services, and why Beijing is unlikely to open up internationally any time soon.
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Gavekal Research
Louis Gave
Sep 07th 2020
After The ‘Pump And Dump’
August was an odd month in the US equity market. It saw Apple, the world’s largest company by market value, add US$650bn to its market-cap despite a string of troubling news. Yet for most investors, the biggest head-scratcher may have been the continued rise in the VIX, even as stocks, led by the Nasdaq, continued to make new highs.
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Gavekal Research
Yanmei Xie, Tan Kai Xian
Sep 04th 2020
The Implications Of A Disputed Election
The pundits bill every US presidential election as the most important and dramatic for years, if not decades. This time they may have a point. However, an examination of the laws governing elections and of past ructions suggests any turbulence for investors will be limited and short-lived.
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Gavekal Research
Charles Gave, Louis Gave, Will Denyer
Sep 04th 2020
Webinar: Global Investment Roundtable, September 2020
Charles Gave, Louis Gave and Will Denyer joined Arthur Kroeber at the global investment roundtable to discuss what's going on in the global economy. Charles identified three big trends that will affect the investment environment in the long term, Will gave an in-dept update on the US economy, and Louis examined where to find assets with “anti-fragile” properties.
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Gavekal Research
Edward Hookey, Udith Sikand
Sep 04th 2020
A Little Battler Soars Too High
A weak US dollar is generally a boon for both global growth and asset prices, yet its recent fall has ruffled feathers. So spare a thought for the Reserve Bank of Australia, which is not only presiding over the country’s first recession in 30 years but is getting no help from its “little battler” currency, which has rocketed 27% against the US dollar since its March low.
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Gavekal Dragonomics
Dan Wang
Sep 03rd 2020
Restraint And Retaliation
As the US government has rolled out ever more actions targeting Chinese firms, China has exercised restraint and has mostly opted not to retaliate in kind. As Dan explains, the government is taking the long view on the economy rather than pandering to nationalist outrage. But China is also developing legal tools that could be used to hurt US firms.
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Gavekal Research
Anatole Kaletsky
Sep 03rd 2020
Why I Was Right To Turn Bullish
Two weeks ago, I wrote an article that tried to explain why I had abandoned the bearish view on equities. We will not know for a long time whether any of my explanations make sense, but Jerome Powell’s speech about the Federal Reserve’s new operating philosophy last week made me more confident about my assertion of a once-in-a-generation economic regime change.
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Gavekal Research
Charles Gave, Louis Gave
Sep 03rd 2020
Strategy Monthly: Eight Questions, 11 Answers
With US equities once again at record highs and the Fed promising to keep rates nailed to the floor, it is time to ask hard questions of the bull market that won’t die. That interrogation is conducted by Charles and Louis Gave. In these strange times, the case for owning anti-fragile assets has rarely been stronger, they contend. Four stand out for having weathered the pandemic and should be treated seriously.
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Gavekal Research
Will Denyer
Sep 02nd 2020
The Dollar Still Has Downside
Has the great US dollar correction of 2020 run its course? After all, the DXY index is down -10% from its March 19 top and -4.4% lower year-to-date. There have been good reasons to sound Cassandra-like warnings on the US currency and while some negative drivers have moderated, the balance of evidence implies more downside.
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Gavekal Research
Vincent Tsui
Sep 02nd 2020
Video: Covid-19's Investment Implications For Asia
Asia has handled the pandemic decently well and its solid macroeconomic fundamentals means it does not face any kind of solvency crisis. The problem for investors is that the growth outlook remains pretty grim, with limited prospects for a swift improvement. As a result, investors should stick with local currency bonds, which look well set in this environment.
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Gavekal Research
Udith Sikand, Vincent Tsui
Sep 02nd 2020
The Model Pupil Still Has Problems
Asia is seen as having had a “good” Covid-19 crisis, as it learnt vital lessons from the 2003 Sars outbreak and its policymakers have been typically more frugal than their Western peers.The problem with such generalizations, argue Udith and Vincent, is that they conceal huge discrepancies among countries.
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Gavekal Dragonomics
Thomas Gatley
Sep 01st 2020
Good News For Corporate Earnings
Good news for corporates: aggregate Q2 net profits for China’s listed non-financial firms were flat YoY, compared to a 50% Q1 decline. In this Quick Take, Thomas explains why he thinks this recovery in listed earnings is likely to continue through H2; however, he expects Q2’s big outperformers to take a step back in the coming months.
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Gavekal Research
Vincent Tsui
Sep 01st 2020
The Perfect Asian Proxy
The Federal Reserve’s new policy framework seems set to keep US monetary policy easier for longer, with the main victim being the dollar. Asian currencies now look well primed and the question for investors is how to play this trend given the very different experiences being had by regional economies. Fortunately, there is a simple answer: just buy the Singapore dollar.
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Gavekal Research
Charles Gave
Sep 01st 2020
A (Short) History Of Central Banking In The US
Gavekal readers will be familiar with Charles's distinction between tools and jewels as a way of thinking about markets. He notes that today we have negative real interest rates while gold has outperformed both cash over the last 12 months and the US stock market since 2018. Today, he asks if we are at the start of a new counter-trend rally in gold relative to US equities.
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Gavekal Dragonomics
Wei He
Aug 31st 2020
The Experiment With Sectoral Monetary Policy
Central banks usually concern themselves with the economy in the aggregate. The People’s Bank of China is now experimenting with a disaggregated approach, minimizing changes in overall policy and instead directing the flow of credit to specific sectors. In this piece, Wei considers whether this experiment can work, and where rates are headed.
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Gavekal Research
Will Denyer
Aug 31st 2020
US Profits In The Pandemic
My preferred “NIPA profits” measure fell by -14.4% during the second quarter of the year, according to US national accounts data released late last week. That follows a similarly bad -13.3% fall in the first quarter. Both declines are on par with the worst quarters in post-war history. And like previous low points, US corporate profitability is likely to recover from here. But what does the data tell us about the investment environment and what...
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Gavekal Research
Louis Gave
Aug 28th 2020
Desperately Seeking Anti-Fragility (Part I)
Since the 1980s, OECD government bonds have tended to be negatively correlated with equities, but during the pandemic that relationship seems to have broken down. Given that the Federal Reserve is embracing a new policy framework aimed at juicing up inflation, there are plenty of reasons to think that bonds cannot continue to play an "anti-fragile" role in portfolios. In this first installment of a two-part series looking at what...
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Gavekal Research
Will Denyer
Aug 28th 2020
The Fed Boosts The Inflation Outlook
The Federal Reserve made a historic change to its monetary policy framework yesterday when it officially adopted “average inflation targeting”. That bullseye remains 2%, but the definition of the target has changed in a way that, in the current context, effectively raises the inflation outlook. This has important implications for future policymaking and current asset pricing.
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Gavekal Dragonomics
Thomas Gatley
Aug 28th 2020
An Acceptable Amount Of Chaos
The first batch of 18 firms on Shenzhen’s tech-oriented ChiNext board under new registration-based IPO regulations exhibited exceptional levels of price volatility this week after their Monday debut. In this Quick Take, Thomas explains why this volatility is to be expected in Chinese equities and might even be an improvement on the status quo.
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Gavekal Research
Tan Kai Xian
Aug 27th 2020
Rich, But Keeping It Real
The US consumer's willingness to spend remains reliable, even during the pandemic, as shown by consumer discretionary stocks sharply outperforming the rest of the market. Since this stock grouping includes pandemic winners like Amazon and Home Depot there is little reason to bet on a trend-change, as the macro winds should remain favorable.
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Gavekal Dragonomics
Andrew Batson, Dan Wang
Aug 27th 2020
The Dimensions Of Decoupling In 2020
The “decoupling” of the US and Chinese economies that began with a trade war has now spread to almost all aspects of the relationship, with the Covid-19 pandemic accelerating the process. In this chartbook, Andrew and Dan show what decoupling looks like so far in 2020, using data on flows of trade, investment, technology, finance and people.
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Gavekal Research
Gilliam Collinsworth Hamilton
Aug 27th 2020
Video: A South China Sea October Surprise?
Tensions in the South China Sea between the US and China are ramping up during a presidential campaign where the incumbent has set himself on a collision course with China. You do not have to be a crazed conspiracy theorist to wonder if this theatre could be the scene of an “October Surprise”.
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Gavekal Research
Udith Sikand
Aug 26th 2020
Japan Drifts Toward Change
This week Japanese prime minister Shinzo Abe went into hospital for medical tests, sparking fresh reports that he may soon step down on health grounds. Should Abe exit the scene it is unclear who will succeed him. If a leadership change becomes unavoidable, Abe will likely play a key role in anointing his successor, so there is unlikely to be a big shift in the “Abenomics” program anytime soon.
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Gavekal Research
Charles Gave
Aug 25th 2020
Does Warren Buffett Know Something We Don't?
The sage of Omaha made an interesting change of tack recently. Warren Buffet sold most of his shares in Goldman Sachs and bought positions in Barrick Gold. Goldman is often held up as the very epitome of the Wall Street financial engineering firm. Meanwhile, Barrick represents the kind of company you would buy if you no longer trusted financial engineering—or the currency in which the financial engineering is taking place.
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Gavekal Dragonomics
Gilliam Collinsworth Hamilton
Aug 25th 2020
Understanding Dual Circulation
Top leader Xi Jinping is now promoting a new slogan—dubbed “dual circulation”—to manage China's significant dependencies on the global economy. In this report, Gilliam explains how this does not mean the country is turning inward, but rather trying to gain more control over its long-term growth without losing its role as an international hub.
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Gavekal Research
Nick Andrews
Aug 25th 2020
A Bottom In Sight For European Banks
No sector has been so beaten down as eurozone banks. But although bad loan ratios are rising, and further big writedowns are on the cards, this bad news is in the price. What is less adequately priced in is the change in policy from the European Union which means there will be no early return to austerity. Eurozone banks may be better placed than investors believe to generate earnings.
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Gavekal Research
Nick Andrews
Aug 24th 2020
The Euro's Solid Ground
After a breakneck 10% rally against the US dollar since mid-May, the euro faces headwinds as rising Covid-19 cases means that European nations must re-instigate social distancing measures. Still, Europe’s newly-agreed common purpose in facing such travails makes any sell-off in the single currency a buying opportunity as the unit looks set on a path of structural appreciation.
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Gavekal Research
Yanmei Xie
Aug 21st 2020
A New FDR?
Joe Biden has accepted the Democratic Party’s nomination to run for the US presidency. Invoking Franklin D. Roosevelt, who responded to the Great Depression with huge public works, Biden promised big fiscal programs to “build back better” after the Covid-19 recession. He also vowed to combat climate change, reduce wealth disparities and advance liberal causes.
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Gavekal Dragonomics
Dan Wang
Aug 21st 2020
Climbing Up The Smartphone Smiling Curve
Chinese advances in hardware technology have increased the country’s contribution to the global smartphone supply chain. In this report, Dan explains how Chinese firms have increased their value-added in both innovation and branding. Now, he suggests, the main headwinds for Chinese smartphones are no longer technological, but geopolitical.
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Gavekal Research
Louis Gave
Aug 21st 2020
Making Biarritz Great Again (Part II)
A few years back Charles and Louis bought into the storied Biarritz Olympique Rugby Club in order to save it from a looming bankruptcy. The ups and downs of this Basque region club during Covid is a microcosm of the French economy’s travails, as the state seeks to protect all players on the field of commerce from both crunching tackles and a spell in the sin bin.
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Gavekal Dragonomics
Thomas Gatley
Aug 20th 2020
Headwinds Build For Equities
Chinese equities tapped on their ceiling this week but have been unable to break through, despite both surprisingly positive economic data and rebounding corporate earnings. In this piece, Thomas explains how increasingly adverse liquidity conditions are keeping a downward pressure on the markets which is unlikely to lift in the short term.
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Gavekal Research
Will Denyer
Aug 20th 2020
Video: The State Of The US Recovery
Pandemic aside, the US faces a looming fiscal cliff and rising political risk as the presidential election campaign starts proper. So why is Will so sanguine about the country’s economic prospects? In this video interview, he explains his position.
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Gavekal Research
Nick Andrews
Aug 20th 2020
Europe’s Job-Protection Choices
Between February and April, some 22mn Americans lost their jobs. The rate of unemployment soared to nearly 15%—four percentage points above its last record high in 1982—but across the pond in Europe joblessness barely budged, inching up to 7.8%, from 7.2% in March. Taking the lead from Germany, governments across Europe decided it was better to keep people in jobs than to fire and rehire them later. As Europe again faces a worsening Covid-19...
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Gavekal Research
Tan Kai Xian
Aug 19th 2020
Solid US Earnings Do Not Mean Another Boom Beckons
With more than 90% of firms in the S&P 500 having reported for the second quarter, the hit to earnings came in nowhere near as bad as expected. This picture is likely to be sustained in the coming year, or so and should lay the ground for solid US equity market performance. Yet, those hoping for a sustained economic recovery to generate the kind of epic returns seen in 2Q20, or in 2009 after the financial crisis, will likely be disappointed.
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Gavekal Research
Anatole Kaletsky
Aug 18th 2020
Why I Was Wrong To Turn Bearish
Yesterday, Anatole suggested that stock markets may be soaring to new records because the Covid-19 crisis could indirectly produce a stronger world economy in the coming decade. Today, he seeks to explain his damascene conversion from post-March bearishness in order that readers can better judge the merit of this view.
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Gavekal Research
Dan Wang
Aug 18th 2020
A Death Sentence For Huawei
The US government has passed a death sentence on Huawei. The questions now are whether it will choose to suspend that sentence, and whether China will retaliate by punishing major US companies. The likely answers, says Dan, are no and no. Huawei is probably finished as a maker of 5G network equipment and smartphones once its inventories run out early next year.
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Gavekal Research
Anatole Kaletsky
Aug 17th 2020
Will A Keynesian Phoenix Arise From Covid?
Two months ago, Anatole dismissed the rebound in equity prices as an outbreak of “market madness” among bored small-time gamblers deprived of the opportunity to bet on horses and sports. He now admits that call was wrong and in this piece explains what has driven the market to new highs. The turnaround likely reflects the largescale reconversion of leading economies to Keynesian demand-management policies and the fact that these seem baked-in...
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Gavekal Research
Louis Gave
Aug 17th 2020
The Past Is Another Country
With US$3trn added to the US national debt during the Covid-19 crisis and trillions more in the works should new salary replacement payments be agreed in Congress, a vital question for investors is how to think about this runaway government spending and what it means for bonds and the US dollar.
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Gavekal Dragonomics
Xiaoxi Zhang
Aug 17th 2020
Don’t Call It A Bailout
China’s government is finally rolling out a plan to aid small banks, the weakest links in the nation’s financial system. But don’t call it a bailout, Xiaoxi argues in this piece: while the government will replenish RMB200bn in capital, the money will mostly support relatively solid banks. The truly troubled banks will be shuttered or acquired.
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Gavekal Research
Louis Gave
Aug 14th 2020
Huawei And The Roads Of The Future
China is engaged in an imperial project that will not be typified by territorial conquest, but by “road building”. This is done to bring commodities to the heart of the empire at the cheapest cost, while higher value-added finished goods are pushed out to its outer realms. It is no coincidence that a common saying for Europeans is that “all roads lead to Rome’”.
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Gavekal Dragonomics
Thomas Gatley, Rosealea Yao, Wei He
Aug 14th 2020
Another Leg Up For Growth
After plateauing in Q2, China’s economic activity is stepping up in Q3, powered by demand in housing, infrastructure and exports, and a lessening drag in consumer services. In this Quick Take, Thomas, Rosealea and Wei explain how these factors will assist the country as it continues down its path back to economic normalcy.
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Gavekal Research
Vincent Tsui
Aug 13th 2020
Keep Chasing Asian Yield
As US equities brush up against new highs and safety assets like gold and treasuries sell off, global risk appetite has risen this week. Investors are betting that a vaccine for Covid-19 is at hand and if not, the world is at least learning to live with the virus. A potential beneficiary of this situation may be Asian bond markets, where quite decent yield can still be had.
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Gavekal Research
Charles Gave
Aug 12th 2020
Building A New System
On Monday, Charles argued that developed economies’ moves to nationalize both the creation of money and the distribution of credit would degrade the unit-of-account function played by fiat currencies in many markets. Today, he outlines new monetary mechanisms that are likely to replace, or at least live alongside, fiat currencies.
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Gavekal Research
Cedric Gemehl
Aug 12th 2020
Europe's Covid-19 Loan Drag
In response to the Covid-19 crisis, central banks in Europe have shoveled money to banks in a bid to have them deliver liquidity to stressed companies. A worry is that this new debt binge will weigh down corporate balance sheets for years to come, and limit growth. These concerns are probably overdone.
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Gavekal Research
Louis Gave
Aug 11th 2020
What US-China Decoupling Means For The US Dollar
Almost all of the world’s commodity trade is done in US dollars, so any commodity-importing country must keep much of its central-bank reserves in US currency. The fact that China, the world’s largest commodity importer, pays for these imports using another nation’s currency was an anomaly even when the US and China got along. As US hostility towards Beijing increases, this raises four possible scenarios.
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Gavekal Dragonomics
Arthur Kroeber
Aug 11th 2020
Hawks In The Driver’s Seat
The China hawks are at the wheel in the Trump administration and driving as fast as they can. In this report, Arthur outlines the many tactics being employed by hardliners in the White House to lock in an adversarial stance against China ahead of the US elections. However tense things have been so far, even tenser times lie ahead.
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Gavekal Research
Charles Gave
Aug 10th 2020
The Destruction Of The Monetary System
A basic assumption for Charles has long been that the creation of money was not under the control of governments but loosely related to value being added in the private sector of the economy. However, with governments now willfully upending this relationship, he thinks the capitalist system faces its biggest upheaval since 1917.
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Gavekal Research
Tan Kai Xian
Aug 10th 2020
The State Of The US Recovery
The renewed Covid-19 outbreak in the past two months put a brake on the US recovery, but that engine is again firing. Despite many states having reversed opening measures, Friday’s payroll report came in strong, with the unemployment rate down to 10.2%; high-frequency data like mobility readings paint a similar picture.
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Gavekal Dragonomics
Dan Wang
Aug 07th 2020
Taking On Tencent
President Donald Trump signed executive orders on Thursday imposing restrictions on Tencent and ByteDance, two of China’s biggest software giants. In this report, Dan explains how the broad language in the orders might end up blocking any US person or company from working with the firms, dealing a major blow to their operations.
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Gavekal Research
Louis Gave
Aug 07th 2020
How To Pay For Sin In The Future?
Just as success has many fathers, there are many possible explanations for the upside breakout in gold prices. Obvious explanations include a rapid rise in monetary aggregates across the OECD, the fall in the US dollar and growing US-China tensions. An overlooked explanation is the demise of physical cash as a liquid and easily transportable asset.
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Gavekal Research
Udith Sikand
Aug 06th 2020
Emerging Markets And The Dollar
A weakening US dollar is usually an unalloyed positive for emerging markets, so it is no surprise that their assets have rallied since the March 23 bottom in global markets—equities are up 45%, while bonds (both US dollar and local currency-based indexes) have gained 20%. Happy days indeed, but the next stage of the EM rally is likely to be more exacting for investors.
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Gavekal Research
Yanmei Xie
Aug 06th 2020
Video: A Joe Biden Presidency?
With the US presidential election less than three months away, polling suggests Joe Biden and the Democrats have a chance at a clean sweep of the White House and Congress. While Biden has been open about wanting to raise taxes and tackle climate change, he would inherit an economy still reeling from the coronavirus shock. With this in mind, Yanmei outlines what the 100 first days of a Biden presidency are likely to look like.
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Gavekal Dragonomics
Thomas Gatley
Aug 06th 2020
Leading The Way In Export Recovery
Chinese exports have outperformed expectations due to booming sales of goods related to Covid-19 and Chinese manufacturers staying open when their international counterparts were forced to suspend production. In this report, Thomas explains why China's export growth will continue to flatten in H2 as global trade catches up.
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Gavekal Research
Louis Gave
Aug 05th 2020
Tech As The Battlefield Of The Unfolding Cold War
Despite technology issues sitting at the heart of the great-power struggle between the US and China, tech stocks continue to brush off geopolitical tensions. Louis is concerned that the market's assumptions don't line up with reality on three counts. It all adds up to a bad brew for tech.
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Gavekal Research
Louis Gave
Aug 05th 2020
Different Decades, Different Backdrops
In the months after the 2008 global mortgage crisis, gold prices broke out to new highs in part driven by the belief that quantitative easing would trigger higher inflation, perhaps even hyper-inflation. Against such a backdrop investors flocked to real assets. Today, similar forces seem to be at work, although maybe in more concentrated form.
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Gavekal Dragonomics
Xiaoxi Zhang
Aug 05th 2020
Bringing Back Volatility
Cleaning up the messy world of wealth-management products is still a key mission in China’s financial de-risking campaign, even if the PBOC has now had to give banks another year to work on it. In this piece, Xiaoxi explains how the regulatory crackdown is pushing the risks hidden in WMPs out into the open, increasing market volatility.
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Gavekal Research
Charles Gave
Aug 04th 2020
Why It Won't Be Hamiltonian
A number of Gavekal writers, in addition to a good share of investors in eurozone assets, saw last month's embrace of mutualized lending to hard-hit European economies as a game changer. Charles is far from convinced that this move has expunged the original sin of the euro, since the single currency area remains riddled with competitiveness problems.
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Gavekal Research
Dan Wang
Aug 04th 2020
The Assault On Chinese Tech
After a whirlwind of negotiations, the US government may have succeeded in forcing the sale of TikTok’s US operations to a US company. The US earlier used national-security grounds to restrict the business of Huawei. Both companies still have large domestic businesses, but US government actions over the past year may mark a peak for the global expansion by Chinese tech firms.
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Gavekal Research
Cedric Gemehl
Aug 03rd 2020
Europe Stares Down A Second Wave
Europe beat back the Covid-19 outbreak in March and April with decisive responses and reaped the benefit by reopening its economy in the early summer. Now, however, the price of fun in the sun has come due, with a rising case count that has led Britain’s prime minister, Boris Johnson, to label it Europe’s “second wave”. In response to rising infections in Spain, the UK has reimposed quarantine rules on returning travelers from the country, while...
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Gavekal Research
Will Denyer, Tan Kai Xian, Yanmei Xie
Aug 03rd 2020
Strategy Monthly: From Bullish To Neutral On The US
The upsurge in second-round Covid-19 infections has put the US economic recovery on hold for now. But government, businesses and consumers have got better at coping with Covid, and in contrast to the first round, the economy is not going backwards.
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Gavekal Research
Vincent Tsui
Jul 31st 2020
Not All Tech Markets Are Created Equal
Aided by lockdown effects, Big Tech has rolled out some stellar results. Self-isolating consumers have replaced devices and devoured cloud computing services, spurring a new upgrade cycle. Such demand has boosted Asia’s tech supply chain, but surging hardware demand is about to become more specific, with some segments facing excess supply and others sustained tightness.
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Gavekal Research
Anatole Kaletsky, Arthur Kroeber, Tan Kai Xian
Jul 31st 2020
Webinar: Global Investment Roundtable, July 2020
In our monthly Global Investment Roundtable, US analyst Tan Kai Xian analyzed the latest US data and assessed the risk that the present economic stall-out turns into a double-dip recession. Arthur Kroeber explained why the Trump Administration has amped up its Cold War rhetoric on China. Anatole Kaletsky tied it all together and tried to explain the recent movements in global markets.
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Gavekal Dragonomics
Xiaoxi Zhang, Wei He
Jul 30th 2020
Questions On The Digital Renminbi
The People’s Bank of China is on the way to becoming the first central bank in the world to launch a digital currency. The idea of a digital renminbi has sparked a huge amount of interest, but confusion and speculation are rampant. In this Q&A, Xiaoxi and Wei provide clear answers to some of the big questions about the digital currency.
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Gavekal Research
Will Denyer
Jul 30th 2020
A Conventional Fed
The Federal Reserve did not shift its policy stance yesterday and nor is it likely to announce some big-bang reform after a “strategic policy framework review”, which Jerome Powell indicated should be wrapped up within a couple of policy-setting meetings. That may not be an exciting story, but it is one that financial markets will welcome.
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Gavekal Research
Charles Gave
Jul 30th 2020
Managing Money In A Keynesian Environment
When Charles looks at US monetary policy, he gets nostalgic for glam rock and big hair, as he is reminded of 1973. However, rather than go on gut, in this piece he sets out to verify that the Federal Reserve is indeed acting as a “Keynesian” central bank. He does this by considering the relationship between US T-bills and the price of gold.
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Gavekal Research
Yanmei Xie
Jul 29th 2020
Don’t Fear The Fiscal Cliff
The Republican Senate proposal for a new stimulus falls far short of the Democratic bill passed in the House in May. Reconciling these differing visions into a unified bill that can pass through both chambers and into law will likely take several weeks at least. As a result, the incomes of 17mn jobless Americans will fall off a cliff at the end of July.
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Gavekal Dragonomics
Rosealea Yao
Jul 29th 2020
Construction’s Surprising Resilience
After a robust recovery in construction following the Covid-19 lockdown, the big question now is whether this growth rate is sustainable. Using a rolling sum of construction starts, Rosealea posits that construction should slow only moderately in the second half, providing room for steel demand to continue growing for the rest of 2020.
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