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Gavekal Research
Nick Andrews
Nov 30th 2021
The Phantom Menace
Prices are rising around the world, but how do we know that all orders are real? If firms have responded to global supply congestion and long delivery times by ordering more than they need to meet demand, it is likely that some will end up not taking delivery of what is apparently due them.
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Gavekal Dragonomics
Wei He
Nov 30th 2021
Property Becomes A Fiscal Burden
With a downturn in property intensifying China’s economic slowdown, hopes are rising that a pickup in infrastructure investment will help stabilize growth in 2022. But as Wei argues in this piece, the property downturn is becoming a major drag on local-government finances, which will limit their ability to boost public works spending.
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Gavekal Research
Louis Gave
Nov 30th 2021
The New, Yet Forgotten, Inflation Force
The global economy and global energy markets were transformed by China’s dramatic expansion of the last 20 years. Most of that growth was fueled by coal, which now finds itself in policymakers’ crosshairs—even in China. Louis assesses the world’s energy mix and asks what the macroeconomic implications will be of a pronounced move away from the dirty fuel.
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Gavekal Research
Tan Kai Xian
Nov 29th 2021
The Economics Of Covid Divergence
Even before omicron showed up, European governments had reacted to high Covid case loads with demand-sapping limits on travel and social activity. In the US, by contrast, most Covid restrictions continue to be focused on what can be generalized as the economy’s supply side. The betting must be that this divergence of approaches remains—and is even reinforced by omicron.
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Gavekal Dragonomics
Xiaoxi Zhang
Nov 29th 2021
The Next Wave Of Bank Stress
The downturn in China’s property sector will be a strain on smaller banks, which are less well-capitalized and often more exposed to the real-estate sector than their larger counterparts. In this piece, Xiaoxi explains why regulators are likely to take a hands-off approach to the problem, tolerating bank closures and encouraging bank mergers.
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Gavekal Research
Charles Gave
Nov 29th 2021
Teaching An Old Dog New Tricks
The US dollar has long been a poor reserve of value. For decades, German bunds did the job. But negative yields mean they no longer fit the bill. That leaves the US equity market as the world’s chosen reserve of value—with far-reaching implications that Charles explores in this landmark paper.
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Gavekal Research
Udith Sikand, Tan Kai Xian
Nov 26th 2021
When Risk Appetite Returns
Whenever a currency crisis engulfs an emerging economy, investors nervously look around for the next shoe to drop. After the meltdown this week in the Turkish lira—down -20% in November; -40% year-to-date—precedents from the Asian crisis of 1997-98 to the 2013 taper tantrum suggest contagion might be about to spread to infect the rest of the emerging currency complex. However, despite the broad strength of the US dollar and steep falls in a...
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Gavekal Research
Udith Sikand
Nov 25th 2021
India’s Economy Retreats With Modi
Last week saw India's prime minister Narendra Modi stun political friend and foe alike with a decision to repeal the laws that underpinned his flagship reform of India’s sclerotic agricultural sector. Udith argues that the likely losers from Modi’s U-turn will be the poor, as India’s structural growth prospects have just taken a big knock.
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Gavekal Research
Charles Gave
Nov 25th 2021
Houston, We Have A Problem
Charles looks at global bond and equity markets, concluding that the combined effect of central bank policies and private sector indexation is creating a massive corner in the US dollar and US equities.The last time something similar happened was in late 1989, when Japanese equities made up more than half of MSCI World.
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Gavekal Research
Tom Holland
Nov 24th 2021
Biden’s Impotent Signaling
Media pundits were quick to dismiss Joe Biden’s release of oil from the US Strategic Petroleum Reserve as a failure Tuesday, on the grounds that the price of crude oil promptly rose by 4%. They were harsh. Despite Tuesday’s rise, the price of WTI has actually fallen by around -7% over the last four weeks as the market priced in the prospect of an SPR draw.
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Gavekal Dragonomics
Wei He
Nov 24th 2021
The Stimulus Won't Be Green
As the sharp downturn in China’s property sector continues to deepen, hopes for the stabilization of economic growth are turning to the prospect of a “green stimulus” via two new lending tools. In this report, Wei explains why the impact of these tools is likely to be negligible, as they are no substitute for an actual relaxation of macro policy.
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Gavekal Research
Nick Andrews
Nov 24th 2021
Video: Russia And The European Energy Equation
The sharp rise this year in European energy prices has been widely attributed to Russia, which has declined to increase near-term supplies of natural gas to Europe in line with the region’s demand growth. Nick examines the incentives guiding Moscow’s decisions and explores the potential impact of Russia’s choices on Western Europe’s inflation and growth outlook.
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Gavekal Research
Will Denyer
Nov 23rd 2021
Biden's Fed Picks
President Joe Biden took the path of least resistance in nominating Jay Powell to serve a second term as Federal Reserve chair. It reinforces my view that macro policy will be driven more by changes in the economic data than changes in Fed leadership. At the sectoral level, these appointments should be positive for US bank stocks.
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Gavekal Dragonomics
Tilly Zhang
Nov 23rd 2021
The Dual Strategy For Semiconductors
China’s drive for semiconductor sovereignty is entering a new phase, with government and industry converging on a dual strategy to reduce vulnerability to US sanctions. First, create a domestic supply chain for mature chip technology; second, invest in new technologies that could offer a different path to competing with leading-edge products.
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Gavekal Research
Udith Sikand
Nov 22nd 2021
Tantrum, What Tantrum?
As the Federal Reserve dials back its quantitative easing program, emerging market assets have come under selling pressure, much as they did in 2013. Yet, it would be wrong to see this as a “taper tantrum”. What cannot be disputed is that global bond markets have, in recent months, thrown a strop.
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Gavekal Dragonomics
Ernan Cui
Nov 22nd 2021
Consumer Outlook & Trends 2021
China’s strong consumer recovery was waylaid by renewed Covid restrictions in 2021, which has kept services like travel and tourism depressed. The zero-tolerance Covid policy is certain to continue through 2022, shaping the pattern of consumer spending. In her annual consumer review, Ernan explains the cyclical outlook and key structural trends.
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Gavekal Dragonomics
Dan Wang
Nov 19th 2021
Charging The Future
The world needs more batteries, both to power electric vehicles and store electricity for green power grids. China is in a prime position to meet that demand as it already commands a large majority of both current and planned production capacity. It is therefore probable that Chinese firms will be commanding leading positions in a decade’s time.
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Gavekal Research
Udith Sikand, Vincent Tsui
Nov 19th 2021
Webinar: Contrarian Takes On Two Emerging Markets
The consensus view seems to be that Brazil is too risky and South Korea is the big money-maker among emerging markets. Not quite so, say Udith and Vincent. In this webinar, Udith outlines why it may be worth it for investors to take on some risk in Brazil and Vincent argues that South Korea’s star may be fading as the export outlook weakens and inflation rises.
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Gavekal Research
Cedric Gemehl
Nov 19th 2021
An Italian Renaissance?
Visiting Gavekal clients in Italy this week for the first time in 18 months, I have been struck by the mood of sunny optimism that pervades the country’s financial community. Arriving there myself with a relatively upbeat view on Italy’s economic prospects, I was expecting at least a partial reality check from clients. But pushbacks were rare and half-hearted. Instead, stories of thriving new start-ups and returning Italian expatriates abounded...
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Gavekal Research
Will Denyer
Nov 19th 2021
The Real Yield Mystery
One of Will’s key calls for 2021 was that real yields on US treasuries would rebound from their deeply negative levels. But despite the news of Fed tapering, real yields have remained stubbornly low. Here, Will examines a number of factors that may be offsetting the expected effect of tapering and concludes investors should be wary a rise in real yields on treasuries.
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