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Gavekal Research
Yanmei Xie, Will Denyer
Jan 15th 2021
Biden’s Spending Plan
In a speech late Thursday, US President-Elect Joe Biden called on Congress to approve an additional US$1.9trn of federal spending to tackle the Covid-19 pandemic and support the US economy. If approved, Biden’s package will bring US government stimulus spending since the start of the pandemic to more than US$5trn. Heavy on support for households, Biden’s proposal would avert the risk of a first quarter contraction in the US economy and prime the...
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Gavekal Research
Louis Gave
Jan 15th 2021
The First, And Last, Line Of Defense
US equity valuations are stretched and bond yields are rising. This has always proved an ominous combination. What’s different this time is that the Federal Reserve continues to inject vast amounts of liquidity into the system. But will the Fed’s infections continue? And if they do, as the pandemic recedes will they prove big enough both to finance economic reopening and to keep asset prices afloat?
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Gavekal Research
Arthur Kroeber
Jan 14th 2021
Video: China's Post-Pandemic Roadmap
A year after Covid-19 was first revealed in China, the country has emerged as one of the key economic winners of the global pandemic. In this video interview, Arthur assesses how it did this and looks at the new priorities for Chinese industrial development in a world that has become less open and more suspicious of Chinese intentions. He seeks to answer these questions with reference to US trade and technology policy toward China as a new...
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Gavekal Dragonomics
Thomas Gatley
Jan 14th 2021
For Exports, It’s Stronger For Longer
China’s exports have been boosted by two side effects of the Covid-19 pandemic: a shift of consumer spending to goods from services, and the failure of manufacturing in other countries to get back to full capacity. How long can those advantages last? Thomas argues they will continue to boost exports through the first half of 2021.
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Gavekal Research
Tom Holland
Jan 14th 2021
A Debate On The US Dollar
In investment, few things can prove as dangerous as a “safe bet” in the foreign exchange market. So, when 2021 began with a firm consensus that the US dollar was destined to fall, only for the DXY index to rally 1% over the last week, people quickly began to question the prevailing consensus. Within Gavekal, this sparked a spirited debate on the direction of the dollar. Readers will not be surprised to learn that there was a range of views, with...
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Gavekal Dragonomics
Rosealea Yao
Jan 13th 2021
New Ceilings For Property Financing
China’s policymakers are expanding their restrictions on bank financing of the property sector, imposing limits on mortgage lending in addition to curbs on borrowing by developers. In this report, Rosealea explains why the new regulations do not shift her expectations of flat property sales and a modest decline in construction activity in 2021.
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Gavekal Research
Simon Pritchard
Jan 13th 2021
The Squeeze Of Old Hong Kong
Last Wednesday Hong Kong police arrested scores of pro-democracy activists for joining forces to try and win a local parliamentary election and thereafter block government legislation. The use of a tough new national security law to suppress routine political organization threatens more international opprobrium that will further cut the city off from the Anglosphere.
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Gavekal Research
Vincent Tsui
Jan 13th 2021
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.
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Gavekal Research
Louis Gave
Jan 12th 2021
Did Big Tech Just Jump The Shark?
For investors, the last decade has been the era of Big Tech. But since September, US social media and consumer-related stocks essentially went nowhere. The unexciting performance belies all the attention these companies have been attracting lately. Following last week’s upheavals in Washington, several Big Tech firms took action to block people and services.
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Gavekal Research
Charles Gave
Jan 12th 2021
The UK After Brexit
Four and a half years after the vote, Britain is properly out of the European Union and moving into a new era. It will surely be a freer nation, says Charles, but in this piece he asks: will it be a richer one? Spoiler alert, he thinks the upshot will be the City of London emerging as the world’s über financial capital.
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Gavekal Research
Will Denyer
Jan 11th 2021
The Road Ahead For US Yields
Friday’s US labor market figures showing a surprise 140,000 contraction in December’s non-farm payrolls emphasized just how tough the winter months are going to be for the world’s largest economy as coronavirus infection rates and resulting hospitalizations continue to accelerate. Yet the grim near-term economic outlook notwithstanding, the first week of 2021 saw inflation expectations push higher, with the 10-year breakeven inflation rate...
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Gavekal Dragonomics
Ernan Cui
Jan 11th 2021
Covid Headaches Continue
China diagnosed 527 new cases of Covid-19 in the first 10 days of 2021, mostly in Hebei province, in the biggest local outbreak since July 2020. In this Quick Take, Ernan explains why this outbreak is challenging China’s Covid-19 playbook and why its timing is particularly concerning ahead of the Chinese New Year.
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Gavekal Research
Will Denyer
Jan 11th 2021
Bitcoin, Gold Or Fiat?
Governments and central banks are giving users of fiat money reason to consider alternative mediums of exchange and stores of value. And it seems entirely possible that Bitcoin can rally even harder than it already has. But are there the makings of a good money? Because if the answer is “no”, then bitcoin is running on fumes.
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Gavekal Research
Arthur Kroeber
Jan 08th 2021
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.
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Gavekal Research
Charles Gave
Jan 08th 2021
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
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Gavekal Research
Anatole Kaletsky
Jan 07th 2021
Investors Should Welcome An Undivided US Government
With undivided Democratic Party control of the White House and both chambers of the US Congress now confirmed, the Biden administration will have free rein to pursue stimulus spending. Yet the balance of power in the Senate means tax hikes are off the table for at least two years. Anatole argues this is highly bullish for US equities.
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Gavekal Research
Yanmei Xie
Jan 07th 2021
After The Storming Of The Capitol
The sight of a ragtag army of diehard Donald Trump supporters storming Capitol Hill unopposed and seizing the floor of the US Senate shocked observers to their core on Wednesday. Yet despite widespread fears that chaos and political violence are set to become the norm, there were important indications late Wednesday that US democracy and rule of law will prevail and endure.
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Gavekal Dragonomics
Wei He
Jan 07th 2021
Not As Hawkish As Feared
The People's Bank of China is one of the world’s most hawkish central banks—but just how hawkish will it be in 2021? Bond market investors worry that the PBOC, eager to normalize policy, will be pushed into hiking rates by higher inflation. In this piece, Wei argues those worries are misplaced, and that bond yields have more room to fall.
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Gavekal Research
Nick Andrews, Cedric Gemehl
Jan 06th 2021
Europe’s New Lockdowns
On Tuesday, Germany followed the United Kingdom by imposing fresh restrictions on activity and movement that in effect amount to a new lockdown comparable—and in some areas even stricter—than the anti-coronavirus shutdown imposed over the second quarter of last year. With infection rates across Europe stubbornly high despite the controls already in place, and with fears mounting about the spread of new viral strains, the risk is high that other...
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Gavekal Research
Yanmei Xie, Will Denyer
Jan 06th 2021
The Senate Upheaval
With some trepidation, Yanmei and Will offer their view on the economic consequences of Georgia, assuming that the Democrats have indeed secured a wafer-thin majority in the Senate. While the fiscal restraints will now surely be released and tax hikes are more likely, the real winners of this election will be centrists in the Democratic Party, who in effect wield veto power over its more liberal instincts.
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Gavekal Dragonomics
Wei He
Jan 06th 2021
The Renminbi Races Out Of The Starting Gate
The renminbi gained 1% against the US dollar in the first two trading days of 2021, leading China’s central bank to signal a pushback against appreciation by tweaking foreign-lending limits. In this Quick Take, Wei explains that such moves are likely to slow than stop the currency’s gains, as fundamentals still favor the renminbi.
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Gavekal Research
Louis Gave
Jan 05th 2021
The Asch Experiment We Inhabit
In the 1950s, US social psychologist Solomon Asch conducted a seminal experiment which showed that people were susceptible to conform with the group consensus, even when their eyes told them the answer was wrong. Looking at the Western response to Covid-19, policymakers have badly failed the Asch experiment. The conclusion must be that political risk in the Western world is now as great as it has been for a generation.
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Gavekal Dragonomics
Andrew Batson
Jan 05th 2021
Decoding The Assault On Alibaba
The antitrust investigation into Alibaba, following close on the heels of the cancellation of the Ant IPO, has raised big questions about the changing political environment for Chinese internet companies. In this piece, Andrew considers the best- and worst-case scenarios, and concludes that at a minimum, growth prospects have dimmed.
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Gavekal Research
Louis Gave
Jan 04th 2021
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?
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Gavekal Research
Louis Gave
Dec 22nd 2020
A Very Merry Christmas From Everyone At Gavekal
Unless something out of the ordinary happens (and given the year we’ve had, the bar is set quite high) this will be our last Daily of 2020. It is thus a chance for me to wish our readers a very Merry Christmas and to thank you for your support, friendship and interactions over the past year. As we never tire of saying at Gavekal, ideas presented in our research usually originate with our clients; or at least, the better ones do (we come up with...
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Gavekal Research
Anatole Kaletsky
Dec 22nd 2020
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.
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Gavekal Research
Yanmei Xie
Dec 21st 2020
A “Little” Stimulus For Christmas
Having agreed another fiscal stimulus, the US government is poised to give its population a US$900bn Christmas gift. This revives relief programs set up at the pandemic’s outset, testifying to both their success in keeping consumers and businesses solvent, and their popularity
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Gavekal Research
Louis Gave
Dec 18th 2020
What Will Stop The Dollar’s Decline?
On Thursday night the US dollar index broke below the 90 level and so put an exclamation mark on two months of weakness. This sell-off means that the DXY now trades on a 14-day RSI of 22.8. The dollar is thus about as “oversold” as it has been in recent years. And up until 2020, buying the US currency at “oversold” levels was a winning strategy, if only because it was in a structural bull market. However, in the past year, buying the dips (...
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Gavekal Dragonomics
Rosealea Yao
Dec 18th 2020
A Looming Correction For Iron Ore
Iron ore prices hit an eight year high in early December in response to a tight steel market. Rosealea writes that this uptick in steel demand, likely due to China’s strong steel-intensive export figures, is unsustainable and should subside in the new year—resulting in a correction for iron ore prices in the coming months.
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Gavekal Research
Charles Gave
Dec 18th 2020
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.
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Gavekal Research
Cedric Gemehl
Dec 17th 2020
The Return Of European Inflation
After averaging 1.2% YoY in 2019, the eurozone’s “harmonized” inflation rate went negative and settled at an abysmal -0.3% YoY in the last three months. Other price indicators have underwhelmed, as shown by the eurozone’s Citigroup inflation surprise index wallowing below -20%. In the US, by contrast, the same measure jumped back into positive territory after August. So what gives?
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Gavekal Dragonomics
Wei He
Dec 17th 2020
The Road To Policy Normalization
China’s economy is almost back to normal after Covid-19, and that means economic policy will also normalize: the question is not whether, but how. In this piece, Wei argues that the most likely policy settings for 2021 will be somewhat tighter fiscal policy and a deceleration in total credit growth, but no increase in policy interest rates.
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Gavekal Research
Vincent Tsui
Dec 16th 2020
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...
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Gavekal Dragonomics
Thomas Gatley
Dec 16th 2020
A Reluctant Executioner
MSCI announced on Tuesday the removal of 10 Chinese securities from its indexes in response to a US executive order. In this Quick Take, Thomas explains why MSCI’s narrow interpretation of the order leads to risk of more Chinese securities being added to the list, and how the decision adds to existing headwinds for Chinese equities.
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Gavekal Dragonomics
Dragonomics Team
Dec 15th 2020
Credit Has Peaked, Growth Has Not
China’s economic momentum continued to accelerate in November despite an October peak in credit growth, with exports and manufacturing investment taking the lead while more policy-dependent sectors plateaued. In this piece, the Dragonomics team explains why China is likely to maintain its strong economic growth through 1Q21.
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Gavekal Research
Anatole Kaletsky
Dec 15th 2020
Deal Or No Deal: Should We Really Care?
As the fifth season of the Brexit soap opera lumbers towards a predictably messy climax, the prospect of a sixth season will probably be enough to discourage international investors from considering British assets and sterling for another year or more. And rightly so. British assets should continue to be avoided because sterling at its present level represents a case of “heads I lose, tails I don’t win”.
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Gavekal Research
Louis Gave
Dec 15th 2020
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.
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Gavekal Dragonomics
Xiaoxi Zhang, Andrew Batson
Dec 14th 2020
The Re-Centralization Of Finance
China’s banking system has been steadily decentralizing for thirty years, with smaller and local banks gaining market share from the large, centrally controlled state banks. In this piece, Xiaoxi and Andrew show that this long-term trend has now come to a halt, and argue that the banking system will start to re-centralize in coming years.
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Gavekal Research
Tan Kai Xian
Dec 14th 2020
An Unfavorable Risk-Reward Bet
Today sees the US vaccination program initiated, and investors are enthused that some kind of return to normal life is finally becoming visible. Nowhere has this “glass half full” view been stronger than in the US corporate credit market, as yield spreads for both investment-grade and high-yield bonds have broken new lows. These moves have occurred despite treasury yields creeping higher, and are starting to look overcooked.
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Gavekal Research
Charles Gave
Dec 11th 2020
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.
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Gavekal Dragonomics
Rogier Creemers
Dec 10th 2020
Social Credit And Digital Governance
China’s social credit system is widely misunderstood as a totalitarian tool. The reality is that it is a relatively low-tech part of a sophisticated Communist Party strategy to use digital means to deliver both better governance and social control. In this 22-page DeepChina report, Rogier Creemers explains the truth behind the social credit myths.
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Gavekal Research
Yanmei Xie
Dec 10th 2020
What Price Now The Big Tech Model?
On Wednesday the US Federal Trade Commission launched its antitrust suit against Facebook, alleging illegal anticompetitive acquisitions. The action came as no surprise. It has long been anticipated, and follows the suit against Google for anticompetitive practices filed by the Department of Justice in October. Nevertheless, in calling for the breakup of Facebook, with the forcible divestment of Instagram and WhatsApp, the FTC’s suit represents...
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Gavekal Research
Udith Sikand, Tom Miller
Dec 09th 2020
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...
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Gavekal Research
Vincent Tsui, Udith Sikand
Dec 09th 2020
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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Gavekal Dragonomics
Louis Gave, Arthur Kroeber, Thomas Gatley, Wei He, Dan Wang
Dec 09th 2020
Webinar: China And The World Economy In 2021
Arthur Kroeber and Dan Wang sketched out the likely course of the US-China rivalry under the new Biden administration; He Wei and Thomas Gatley analyzed key developments in China's economy and markets, and Gavekal CEO Louis Gave presented his views on the forces shaping global markets.
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Gavekal Dragonomics
Rosealea Yao
Dec 08th 2020
A New Reality For Commercial Property
Vacancy rates for office and retail space are picking up sharply this year despite a broad return to normality in China. In this report, Rosealea argues that Covid-19 accelerated an ongoing shift towards at-home work and entertainment. Developers must now grapple with the new reality that demand is unlikely to ever return to pre-Covid levels.
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Gavekal Research
Louis Gave
Dec 08th 2020
The Three Key Prices: The US Dollar
It is an axiom of Gavekal’s research that the starting point for looking at the global macro landscape is that three prices matter above all others: the 10-year US treasury yield, the price of oil, and the US dollar exchange rate. In the third of a three-part series, Louis examines the US dollar.
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Gavekal Research
Nick Andrews
Dec 08th 2020
The Limits Of Europe’s Rotation
The last five weeks have seen an impressive rally in Europe’s formerly beaten- down equity market sectors. As hopes have grown that vaccines will bring the coronavirus pandemic to an early end in 2021, the stocks of Covid losers such as banks, oil and gas companies, airlines and airports have leapt sharply higher. The Stoxx bank index, for example, is up 44% since the end of October in euro terms, 50% in US dollar terms.
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Gavekal Research
Tan Kai Xian
Dec 07th 2020
Rising Yields And US Housing
Investors are looking ahead to us economic growth picking up as vaccines are deployed and restrictions dialed back. With the Federal Reserve having anchored short rates near zero, this dynamic is causing a yield-curve steepening. The question is whether higher yields feed back into a still vulnerable US economy and choke off the recovery.
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Gavekal Research
Thomas Gatley
Dec 04th 2020
Sell A-Shares Into Strength
Over the last month, onshore Chinese equities have got swept up in the global rally. The CSI 300 gained 7% in November, surpassing July’s peak to set a new high for the year this week. And the broader Shanghai index is on the cusp of following. However, this is a rally running on fumes.
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Gavekal Research
Will Denyer, Vincent Tsui, Thomas Gatley, Udith Sikand, Cedric Gemehl
Dec 04th 2020
Webinar: Global Investment Roundtable, December 2020
The US equity market is seeing a switch from the winners of the pandemic like technology and online retail, to the beaten-up losers such as travel plays. At the same time, hopes for a strong economic recovery in 2021 are juicing up value stocks. Similar dynamics are being seen in other major markets. Our team of analysts discussed what happens next, and what’s in store in 2021.
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Gavekal Research
Will Denyer
Dec 04th 2020
Video: The Treasury’s Liquidity Programs And Markets
US Treasury Secretary Steven Mnuchin has come under fire for failing to extend a number of the Treasury’s liquidity support programs into 2021. But as Will outlines in this short video interview, while the existence of the facilities that are set to expire helped to shore up sentiment back in March and April, they have been little used, and are now largely irrelevant in practical terms.
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Gavekal Research
Louis Gave
Dec 03rd 2020
Tail Risk Insurance: Financials And Gold
US equities have just had a record month on hopes that a successful rollout of vaccines will allow the world economy to return to normal. The questions is what that will look like in financial markets, especially given that the US government is spending record sums.
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Gavekal Dragonomics
Thomas Gatley
Dec 03rd 2020
Access To Global Capital Has Peaked
After years of inflows via IPOs and foreign portfolio investment, the US is now moving to deny Chinese firms access to global capital. As a result, Thomas explains that the firms will instead have to rely on domestic markets for equity fundraising, which could cause a liquidity drag in onshore and Hong Kong equities.
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Gavekal Research
Cedric Gemehl
Dec 03rd 2020
The ECB And Euro Strength
In the last couple of days the euro has broken higher against the US dollar. The last time the euro hit US$1.20, European Central Bank officials led by president Christine Lagarde emerged to talk the currency down, worried that euro strength would import deflation and erode European competitiveness. The question now is whether the ECB will again come out to jawbone the euro lower.
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Gavekal Research
Vincent Tsui
Dec 02nd 2020
Asian Bonds Remain Attractive
Two weeks ago, the central banks of Indonesia and the Philippines each lowered their policy rates by 25bp, making their first rate cuts since the summer. Although the moves came as a surprise to the markets, they should not have done. Across Asia real interest rates are generally positive, and in some cases are above their long term averages, while inflation rates are modest. This gives central banks plenty of room to reduce nominal rates to...
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Gavekal Research
Tan Kai Xian
Dec 01st 2020
Georgia On My Mind
In the four weeks since the US election, the S&P 500 has climbed 7.5%. The bulk of that run-up can be attributed to hopes for an early vaccine roll-out, but at least some is due to the perceived decline in US political risk, Yet although US electoral risk may have diminished, it has not disappeared, and may yet return to affect investor positioning in markets over the coming weeks.
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Gavekal Research
Will Denyer
Dec 01st 2020
Strategy Monthly: Two Equity Rotations For A Post-Covid World
The impending rollout of vaccines in the United States is spurring two big equity rotations. With investors looking ahead to a post-Covid world, a rotation has begun from stocks that thrived in the pandemic to those that merely clung on. Second, the expectation that a robust economic recovery will push interest rates up has caused beaten-down value stocks to recover some mojo. Investors should play these rotations at a granular, sub-sector level...
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Gavekal Dragonomics
Wei He
Dec 01st 2020
Eroding The Implicit Guarantee
China’s financial regulators recently stepped in to calm a corporate bond market roiled by the unexpected default of a local state-owned enterprise. In this report, Wei argues that this reassurance does not translate to a reassertion of the implicit sovereign guarantee for local SOE debts; in fact, more local SOE defaults look likely for 2021.
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Gavekal Research
Louis Gave, Thomas Gatley
Nov 30th 2020
The Fate Of Chinese Listings In The US
Today, there are 365 Chinese companies listed on US markets. A handful of these have dual listings in Hong Kong, but for most, the US is their sole listing. Together, these 365 companies account for US$1.92trn of market capitalization. This increasingly looks like an anomaly. Why should Chinese companies choose to raise capital on Wall Street when they can tap the capital market in Hong Kong?
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Gavekal Dragonomics
Dan Wang
Nov 30th 2020
Huawei's Slow Strangulation
The US government’s August decision to deny Huawei access to every advanced chip in the world was a death sentence for the firm, but its execution has not been swift. In this report, Dan outlines the uneven effects of the decision on Huawei’s different business lines and explains why any solution to the firm’s troubles will have to be political.
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Gavekal Research
Louis Gave
Nov 27th 2020
The Importance Of The Renminbi
In days long gone by, the yen’s exchange rate affected asset prices around the world. Today, it is not the yen that investors need to watch, but the renminbi. And in the last few months the renminbi has been strengthening, with important implications for everything from global bond yields, through energy prices, to the relative performance of US growth and value stocks.
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Gavekal Research
Nick Andrews
Nov 27th 2020
Yield Curves, The Euro And The Dollar
The balance of probability points towards a steeper US yield curve over the short to medium term as US short rates remain pinned at zero and long-dated US treasury yields push higher. One might think that higher US long rates should attract capital inflows, but what matters is the relative shift in gradients, notably between the US dollar and euro yield curves.
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Gavekal Research
Simon Pritchard, Tom Holland, Dan Wang, Vincent Tsui
Nov 26th 2020
Webinar: Hong Kong Under The National Security Law
Hong Kong has spent five months living under a tough national security law imposed on it from Beijing. The direct impact has been a sharp curtailment of opposition political activity that has sparked sanctions from the United States. Now, China has plans for more changes to Hong Kong's legal system, with a requirement for judges to be patriots. In yesterday’s webinar, Vincent Tsui, Dan Wang, Tom Holland and Simon Pritchard discussed the...
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Gavekal Research
Louis Gave
Nov 26th 2020
A Bridge Too Far?
The Reserve Bank of New Zealand was the first central bank to successfully argue that being independent from government direction would let it foster better economic outcomes. Yet the RBNZ still seems one to break down barriers—or perhaps have them broken down for it. On Tuesday the Kiwi finance minister proposed that control of house prices should be added to its inflation remit.
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Gavekal Research
Will Denyer
Nov 25th 2020
Two Equity Rotations In The Making
Investors are bulled up on hopes that successful vaccine roll-outs will end the Covid-19 pandemic before next spring and the US will get a smooth transition of power that leaves an investor-friendly divided government. Since Pfizer announced its successful stage-three vaccine trials on November 9, managers have been forced to reassess their US portfolio positioning. That process has likely only just got going.
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Gavekal Dragonomics
Ernan Cui
Nov 25th 2020
How Covid-19 Changed Chinese Consumers
China’s consumer recovery from lockdown initially lagged other economies, but now looks more sustainable. Discretionary goods are booming, and the online shakeout of retail continues, though other services and staples are less exciting. In this chartbook, Ernan presents a special Covid-19 edition of her annual review of the Chinese consumer.
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Gavekal Research
Yanmei Xie
Nov 25th 2020
Video: What Prospect US Fiscal Support?
Investors in the US are displaying signs of euphoria as they anticipate the end of the pandemic due to the roll-out of vaccines. But is this shortsighted given the lack of agreement over fiscal stimulus? Our US policy analyst Yanmei thinks the market has it about right, as the political stars are aligning for some kind of accommodation on a new spending package.
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Gavekal Dragonomics
Dan Wang
Nov 24th 2020
This Time Is Different For Industrial Policy
Chinese bureaucrats are now busily drafting plans to achieve self-reliance in high technology. But as Dan argues in this piece, this latest industrial-policy push will be different. Thanks to US restrictions on Chinese firms, notably Huawei, the private sector is already convinced that developing substitutes for imported technology is necessary.
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Gavekal Research
Tom Holland
Nov 24th 2020
The Realignments Begin
It was no coincidence the first-ever visit to Saudi Arabia by an Israeli prime minister took place a day before US President-Elect Joe Biden announced his choice of Antony Blinken as Secretary of State, indicating a conciliatory stance towards Israel and Saudi's mutual enemy Iran. It was, however, coincidence that the price of oil should advance to its highest since early March on Tuesday.
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Gavekal Research
Louis Gave
Nov 23rd 2020
Three Strikes And Still In
In the last three weeks, investors in Chinese assets have suffered a series of shocks, with the suspension of the Ant IPO, antitrust actions against China’s tech giants, and the high-profile default of a local state-owned enterprise. Louis examines what may be going on behind the scenes, and sets out how investors should interpret these successive shocks.
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Gavekal Research
Tan Kai Xian
Nov 23rd 2020
A Boost From US Restocking
As the latest wave of US coronavirus infections continues to worsen, the probability of a modest contraction in fourth quarter GDP is rising. However, there are solid arguments for believing that the worst case scenario for 4Q remains no worse than a mild contraction in output.
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Gavekal Research
Charles Gave
Nov 20th 2020
Dear Cedric And Nick, Allow Me To Disagree...
...in Thursday’s Daily you argued that Hungary and Poland’s effort to veto yet another power grab by Brussels represents a mere hiccup in the march towards a European nation state. You can add Slovenia into that basket of recalcitrants. I believe that these three countries are posing an essential question: where does the legitimacy of a government come from?
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Gavekal Research
Tom Miller
Nov 20th 2020
The Scars Beneath India’s Cheer
As India celebrated Diwali this month, there was some reason for cheer on the economic front. After a deep downturn, demand has picked up, the economy is primed to return to growth in the fourth quarter, and the manufacturing sector is firing on all cylinders. Nevertheless, the scars from this year’s contraction will take a long time to heal.
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Gavekal Research
Cedric Gemehl, Nick Andrews
Nov 20th 2020
Webinar: Europe And The Second Wave
European markets were ebullient earlier this week on news that an effective Covid-19 vaccine may be approved for use early next year. In the meantime, regional lockdowns aimed at curbing the escalating pandemic threatens Europe's economic recovery. This all but guarantees loose monetary and fiscal policy for the foreseeable future. In yesterday's webinar Nick and Cedric discussed how this shakes out for investors.
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Gavekal Dragonomics
Xiaoxi Zhang
Nov 20th 2020
The Macro Implications Of Microfinance
The surprise suspension of Ant Group’s IPO on November 4 was caused by the publication of new rules on online microfinance—a tiny sector that accounts for just 0.3% of China’s banking system. In this piece, Xiaoxi explains why microfinance is of so great macro importance to China’s financial regulators, and what they will do next.
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Gavekal Research
Nick Andrews, Cedric Gemehl
Nov 19th 2020
Limits To EU Solidarity
This week, Hungary and Poland vetoed the European Union’s €750bn recovery fund in a fit of pique at a new mechanism that will stop money going to “bad boy” states deemed to impede the rule of law. With southern Europe waiting for EU cash to support its post-Covid recovery, the two eastern bloc countries hope to force a compromise that will stop outside interference in their domestic affairs. The issue tops the agenda of today’s EU leaders’...
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Gavekal Research
Nick Andrews
Nov 19th 2020
Video: EU Summit Tensions
European Union leaders are today sitting down for a high stakes summit. Poland and Hungary are threatening to scupper the EU’s budget and grandly-announced Recovery Fund if they are further penalized for becoming authoritarian and eroding the rule of law. The pandemic continues to demand leaders’ attention and Brexit lurks as the ugly beast in the background.
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Gavekal Dragonomics
Wei He
Nov 18th 2020
The Second Wave Of Bond Inflows
There was a record increase in foreign holdings of Chinese bonds in the second and third quarters of 2020, almost all of it from private-sector investors. In this report, Wei explains why foreign investors will likely continue to buy up Chinese bonds and why Chinese authorities appear relaxed about this second wave of inflows to the bond market.
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Gavekal Research
Vincent Tsui
Nov 18th 2020
The Upside For Asian Currencies
As global uncertainty has started to recede following the US election result and on the promise of effective coronavirus vaccines, so the skies have begun to clear for Asian currencies. Recently the components of the East Asia ex-China currency complex have begun to appreciate across the board at an accelerating rate. The conditions are ripe for this to continue.
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Gavekal Dragonomics
Xiaoxi Zhang, Wei He
Nov 17th 2020
Cracks Appear In Local Support For Bonds
A missed debt payment last week by a local state-owned enterprise in Henan province has created turmoil in China's corporate bond market. In this report, Xiaoxi and Wei explain why the default undermined one of the market's fundamental supports and why investors are now likely to be more discerning between provinces.
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Gavekal Research
Tan Kai Xian, Yanmei Xie
Nov 17th 2020
The Brake On US Growth
Hopes for effective coronavirus vaccination programs in 2021 propelled both the S&P 500 and the Russell 2000 small cap index to record high, but on the ground in the US, accelerating infections and rising hospitalization rates prompted more state and local governments to order additional restrictions in a bid to slow the spread of the virus.
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Gavekal Dragonomics
Dragonomics Team
Nov 16th 2020
Full Steam Ahead
Economic data released on Monday showed China’s continued economic normalization, with property sales and infrastructure investment outperforming expectations, industrial activity staying strong and the consumer recovery picking up. In this Quick Take, the Dragonomics team outlines why this environment is favorable for bonds and risky for equities.
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Gavekal Research
Charles Gave
Nov 16th 2020
Are The Markets Trying To Tell Us Something?
I am not a technical analyst, but I am an avid consumer of charts, which I often use to check if my overall view is confirmed, or not, by the markets. Having undertaken this exercise recently, I have two strong convictions.
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Gavekal Research
Tom Miller
Nov 16th 2020
After RCEP: A Tough Ask For Pivot 2.0
On Sunday, China signed the Regional Comprehensive Economic Partnership. With the 15-nation trade agreement, Beijing has successfully positioned itself at the center of the region’s trade and investment networks. This will make it hard for US President-Elect Joe Biden to fulfill his pledge to place “America back at the head of the table” in international relations, at least in Asia.
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Gavekal Research
Nick Andrews
Nov 13th 2020
Biden And Brexit
Despite the UK enduring another Covid lockdown and facing a key Brexit deadline on November 15, its political class spent this week obsessing over a personality struggle inside the prime minister’s office. The real significance of a Brexit-supporting aide to Boris Johnson quitting his post may be that the UK is about to accept a trade deal will leave it as an effective satellite of the European Union. After all, hopes for a plucky Britain going...
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Gavekal Dragonomics
Dan Wang, Thomas Gatley
Nov 13th 2020
Another Trump Attack On Chinese Stocks
President Trump signed an executive order on Thursday barring US investments into a list of 31 Chinese firms, 13 of which are publicly listed. In this Quick Take, Dan and Thomas outline what obstacles the order faces before implementation, what impact it would have for investors and what the move means for Chinese equities both on- and offshore.
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Gavekal Research
Arthur Kroeber, Andrew Batson, Dan Wang, Wei He, Thomas Gatley
Nov 13th 2020
Webinar: China After The Recovery
Having gone into lockdown first, China was also the first economy to emerge, and has since enjoyed a rapid rebound in industrial production and exports, reflected in financial markets. But now that the economy is back to “normal”, policymakers have returned to a conservative stance which focuses on financial stability.
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Gavekal Research
Cedric Gemehl, Nick Andrews
Nov 13th 2020
After Consolidation, A Further Rerating
Given the violence of Monday’s rotation-driven rally on soaring hopes of an early coronavirus vaccine rollout, it is small surprise that equity markets are now giving back some of those gains. Expectations are still high that developed economies will be able to begin vaccination programs as early as the first quarter of next year. But the intervening days have given investors a keener appreciation of the challenges involved. Meanwhile, the...
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Gavekal Dragonomics
Andrew Batson, Dan Wang, Ernan Cui
Nov 12th 2020
The Internet Is No Longer Exempt
Recent major regulatory actions have sent a strong message to Chinese internet companies: you’re not special anymore. In this report, Andrew, Dan and Ernan explain why anti-competitive practices, prudential risk and the pandemic are now prompting policymakers to regulate online firms on the same basis as their offline counterparts.
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Gavekal Research
Will Denyer
Nov 12th 2020
Time To Look Beyond The US
Heading into the US elections, there were three big reasons to be bearish on the US dollar. With the results as they stand, one of those concerns has diminished. But the other two continue to weigh on the US currency. Meanwhile, the US equity market is looking extremely expensive compared with equity markets elsewhere. Together, these factors favor unhedged positions in selected non-US equity markets.
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Gavekal Research
Will Denyer
Nov 12th 2020
Video: Politics And Pandemics—The US After The Election
The last week has seen two big developments affecting the US economy and markets: effective confirmation that Joe Biden has won the presidency, and a surge in hopes for the early rollout of a coronavirus vaccine as infection rates continue to accelerate. Will examines how the last week’s news affects the US growth outlook, and outlines what it means for US bonds, equities and the dollar.
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Gavekal Research
Louis Gave
Nov 11th 2020
China’s Departure From Past Standard Operating Procedures
China is emerging from the pandemic stronger than its big economic rivals in the West. It is an irony that the US and Europe are applying expansive Keynesian-type solutions of the type China has deployed in recent crises, but now seems to be rejecting. The result, Louis argues, may be that China starts to enjoy a "triple merit" scenario.
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Gavekal Research
Tan Kai Xian
Nov 11th 2020
Either Steeper, Or Much Steeper
Hopes of an early vaccine rollout mean that investors are now looking beyond rising coronavirus infection rates in the US towards an end to the pandemic in 2021. The resulting improved business and consumer confidence will favor stronger activity next year, and therefore a steepening of the US yield curve driven by higher long term bond yields. On top of this, there is an appreciable probability that the Democrats could yet capture the Senate in...
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Gavekal Dragonomics
Dan Wang
Nov 11th 2020
The Race To Decouple
Both the US and China now seem eager to reduce their mutual economic dependencies. However, such a process is different for either country: Dan explains that China’s reliance on the US is narrow and technical in scope while American dependence on China is more wide-ranging. The US therefore faces more complex challenges in the “race” to decouple.
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Gavekal Research
Louis Gave
Nov 10th 2020
Turning The Page On 2020?
Monday’s vaccine news from Pfizer raises the prospect that along with the US election, investors will soon be able to stop worrying about Covid-19. Suddenly the hope that economic activity can return to normal no longer sounds absurdly Pollyannaish. This about-turn not only triggered a sharp reversal in a bunch of market prices, it also raised a host of questions.
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Gavekal Dragonomics
Rosealea Yao
Nov 10th 2020
Housing & Construction Review 2020
China’s property sector led the rebound from Covid-19 lockdown, but how long can the new boom last? In her annual chartbook, Rosealea explains the outlook for 2021 after a very volatile 2020. Housing policy has turned tighter after signs of overheating, which points to sales flattening and construction activity declining next year.
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Gavekal Research
Charles Gave
Nov 09th 2020
Markets And The Split Between American Trees And American Boats
The aftermath of the US election points to deep distrust between America’s two great political tribes that could yet become a concern for investors. Charles worries that betrayal narratives in the US may lead to the Federal Reserve printing even more money in order to paper over the cracks of division.
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Gavekal Research
Anatole Kaletsky
Nov 09th 2020
Pricing The Post-Election World
For once, everything went according to plan. The US election has passed without any big surprises—and the initial market reaction has been exactly what would be predicted in any textbook of finance, when a centrist and predictable conventional politician replaces an extreme and erratic populist as US president.
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Gavekal Dragonomics
Arthur Kroeber
Nov 09th 2020
Fine-Tuning The US-China Rivalry
In almost no area of the US-China relationship can President-elect Biden fully reverse the combative approach President Trump has put in place. Instead, writes Arthur, the Biden administration will likely fine-tune regulations to balance US economic and security interests, all while working closer with US allies—none of which will be easy.