Gavekal Dragonomics

Thomas Gatley

Jul 27th 2016

China’s industrial profits bounced back to 6.2% growth in the first half, a stronger than expected recovery. The drivers are a boom in metals driven by the housing rebound, and continued gains in consumer sectors. But the metals boom is a temporary one, so after a couple more quarters of gains, a renewed down-cycle is likely in early 2017.

Gavekal Research

Nick Andrews

Jul 26th 2016

On Friday, the European Banking Authority will publish the results of its 2016 stress tests. Although 51 banks from across the European Union have been tested, attention will focus most closely on the results of the five Italian banks covered. With Italy’s banking system widely identified as the most likely locus of a new eurozone crisis, bankers, politicians and investors are all hoping for the “best” likely result. This would see all the banks...

Gavekal Dragonomics

Rosealea Yao

Jul 25th 2016

China’s iron ore imports jumped in early 2016, finally validating global mining companies’ strategy to gain market share. As low prices continue to force domestic mines to close, iron ore imports still have a few quarters of growth ahead. But with import penetration already over 80%, there is not much market share left for global miners to grab.

Gavekal Research

Tan Kai Xian, Leonor du Jeu

Jul 21st 2016

One of the side effects of negative interest rates and central bank asset purchases in the eurozone and Japan has been a reach for yield which has seen foreign investors rush into relatively high-yielding US assets, compressing yields and spreads to an extent that appears at odds with the late-cycle stage of the US economy. Earlier this month the 10-year US treasury yield set a new low of 1.36%, while US Baa-rated corporate bond yields fell to...

Gavekal Dragonomics

Rosealea Yao

Jul 20th 2016

Domestic coal output has declined sharply this year, but steel production has been flat. This pattern reinforces the point that excess capacity only shuts when forced to by low prices—and steel prices were high because of the stimulus. While both excess capacity sectors will continue to contract, trade tensions are unlikely to vanish quickly.

Gavekal Research

Andrew Batson

Jul 18th 2016

China’s better-than-expected economic data for the second quarter underscore just how effective a jolt of stimulus to housing and construction can be. But housing is already cooling, and the rest of the economy will soon follow suit. The froth in housing prices will continue to limit the government’s ability to pump up growth to meet its targets.

Gavekal Research

Neil Newman

Jul 15th 2016

Over the last couple of weeks, the world’s attention has been focused by turns on British politics, Italy’s banking crisis, the US presidential race and most recently, last night’s ghastly events in Nice. It is little surprise then, that a series of three stories from Japan (or perhaps just two and a half) has passed largely under the radar. Taken together, however, these developments bear heavily on the future of the Japanese government bond...

Gavekal Dragonomics

Long Chen

Jul 14th 2016

Where are the risks in the Chinese financial system? Two weak links deserve particular attention: the rapid expansion of small and regional banks with unstable funding, and the increasing complexity of credit creation. Neither threatens an immediate systemic crisis, but they do mean that the risk of ugly financial accidents is rising.

Gavekal Research

Tom Miller

Jul 13th 2016

Beijing declared it “null and void,” but the verdict of the international tribunal in The Hague is clear: there is no legal basis for China’s maritime claim over the South China Sea. Beijing now faces a choice: does it find a face-saving way of lowering tensions, or does it risk military conflict by actively asserting its territorial interests? It is quite possible that Beijing does yet not know itself, and will wait to respond to international...