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Gavekal Dragonomics
Ernan Cui, Andrew Batson
Oct 14th 2015
A Rough Road For Retailers
Chinese consumers spent plenty of money over the national holiday this month—but growth in retail sales has clearly slowed along with the rest of the economy. On top of this slowdown, structural changes in shopping patterns are wreaking havoc with traditional retailers, who increasingly struggle to benefit from the bright spots in consumption.
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Gavekal Research
Udith Sikand, Joyce Poon
Oct 14th 2015
No Real Respite In Brazil
Dilma Rousseff yesterday won a temporary reprieve from a threatened impeachment and Brazilian assets promptly took a beating. Investors seem to be hoping for a presidential ouster as an end to the political turmoil which has killed any chance of fiscal consolidation or structural reform. With an emerging market bounce seemingly ebbing, Brazilian assets do not offer an appealing risk-reward profile—even after yesterday’s sell-off, the real has...
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Gavekal Research
François-Xavier Chauchat
Oct 13th 2015
Could Volkswagen Save Europe?
Volkswagen's stock price has rebounded more than 20% since its early October low, but there remains uncertainty about the firm’s future. Since news of the diesel polluting scandal broke, US$30bn has been wiped off VW’s market value, and you do not need to be conspiratorial to see a scenario that has the value of the German carmaker’s equity going to zero.
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Gavekal Research
Tan Kai Xian, Will Denyer
Oct 13th 2015
Position For A Pick-Up In US Inflation
Everyone agrees that US inflation, if not actually dead, is unlikely to gain a new lease on life any time soon. With oil prices down -48% over the last 12 months and the US dollar up 11%, inflation as measured by personal consumption expenditure is just 0.3%, while core inflation (ex-food and energy) is down to 1.3% year-on-year. What’s more, investors expect no acceleration in price rises over the medium term. The implied breakeven inflation...
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Gavekal Research
Andrew Batson
Oct 12th 2015
Can Stimulus Save China?
Last week the International Monetary Fund confirmed its forecast that China’s growth will slow to 6.3% next year—the weakest rate since 1990, in the aftermath of Beijing’s suppression of the Tiananmen Square protests. In an attempt to counter this slowdown, in recent months the government has rolled out a series of measures designed to stimulate demand. It has cut interest rates, reduced bank reserve requirements, released funds for...
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Gavekal Research
Nick Andrews
Oct 12th 2015
Italy’s Debt Trap Escape Bid
Even though Italy has run primary surpluses for all but one of the last 20 years, public debt has ballooned to 133% of GDP, second only to Greece in the eurozone. Italy’s original profligacy dates to the 1980s, but the real issue has been an inability to bite the bullet on reform, which, according to the International Monetary Fund, has reduced potential economic growth to just 0.4%. The good news is that Italy seems to have woken up and smelt...
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Gavekal Research
Tom Miller
Oct 09th 2015
The Fallacy Of Containment
Japan’s Prime Minister Shinzo Abe hailed this week’s deal on the Trans-Pacific Partnership as evidence that “the curtain is finally rising on a new Asian century.” The TPP is the biggest trade agreement for 20 years, its 12 members accounting for a full 35% of global trade (see The Big Winner From The TPP). Yet it is hard to get excited about a trade deal that deliberately leaves out the world’s biggest trading nation: China. The TPP is designed...
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Gavekal Dragonomics
Rosealea Yao
Oct 08th 2015
Spreading The Urban Wealth
President Xi Jinping is promoting a plan for integrating Beijing and Tianjin with poorer Hebei province, ev even declaring it a national strategy to drive future growth. If successful, the plan will spread some of the resources in central Beijing more evenly around the region. This in turn will push up property prices in suburbs and smaller cities.
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Gavekal Research
Anatole Kaletsky
Oct 08th 2015
The Best Financial News In Months
To our relief, China’s latest reserve statistics showed a significantly smaller than expected decline, confirming that capital flight out of China has eased substantially. The threat to the global economy generated by the summer turmoil has now lifted, and markets all over the world should therefore return to risk-on mode.
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Gavekal Research
Research Team
Oct 07th 2015
The Birth Of A Pain Trade?
The question we have received most in recent days is whether this week’s counter-trend rally in commodities, deep cyclicals and emerging markets can morph into a “melt-up” akin to that seen in 4Q98. Seventeen years ago the blowback from the Asian Financial Crisis culminated in late September with the failure of Long Term Capital Management. Within days of a hurriedly agreed creditor bailout, the Federal Reserve had made the first of three...
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Gavekal Research
Will Denyer, Tan Kai Xian
Oct 07th 2015
Does Slower Job Growth Signal A Coming US Recession?
There’s no getting away from it: last week’s US employment report was unequivocally weak. According to the latest estimates, the US added only around 140,000 jobs in each of August and September—a marked slowdown from the average growth rate of 260,000 in 2014. So what is going on? There are three possibilities:
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Gavekal Dragonomics
Andrew Batson
Oct 06th 2015
The Stimulus Question: Not When But How
With China’s growth heading below the government’s 7% target, policymakers are once again rolling out supportive measures. But will yet more stimulus be enough to arrest the slide in growth and turn around sentiment? In this piece, Andrew explores the potential impact from two conventional and two unconventional options for further stimulus.
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Gavekal Research
Joyce Poon
Oct 06th 2015
The Big Winner From The TPP
After a tough summer with little to cheer about, investors finally got some good news yesterday. After five years of negotiations, culminating in six days of round-the-clock talks in Atlanta, the US, Japan and 10 other Pacific Rim economies finally struck a deal on the Trans-Pacific Partnership. If ratified by the signatories’ parliaments, the TPP will be the biggest liberalization of global trade since China’s entry into the WTO, and the...
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Gavekal Research
Anatole Kaletsky
Oct 05th 2015
Not The Obvious Payroll Conclusion
Is the US economy sliding towards recession? After six years of steady expansion, it would not be unusual for the business cycle to start rolling over. This possibility, suggested by Charles’s time-tested recession indicators (see Positioning For A US Recession), caused equities and the dollar to swoon right after Friday’s unexpectedly weak payroll report. Until this release it was tempting to dismiss such historic cyclical indicators that rely...
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Gavekal Research
Joyce Poon
Oct 02nd 2015
Asia's Good For A Bounce
Financial markets offer a real-time snapshot of how humans, and increasingly computer programs react to new information. When they collectively engage in a fit of irrationality the opportunity arises to extract profits. With Hong Kong equities rallying hard in this morning’s session, it seems that enough investors reckon such a moment has arrived in Asia.
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Gavekal Research
Louis Gave, Joyce Poon, Nick Andrews, Andrew Batson
Oct 02nd 2015
The Gavekal Monthly: More Questions Than Answers
With the Fed having put its rate hike decision on hold, investors face an uncertain environment of weak global growth and inflation, tottering emerging markets and continued worries about China. In this edition of The Gavekal Monthly, Louis-Vincent Gave surveys the crucial questions investors must grapple with and identifies the indicators to monitor in the coming weeks. In addition, we highlight three calls from our analyst team: Joyce...
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Gavekal Research
Charles Gave
Oct 01st 2015
The Financing Gap, Creative Accounting And US Recessions
The pithy aphorism that there are “lies, damned lies and statistics” is attributed to Benjamin Disraeli. Having spent the better part of my adult life torturing data to prove points, I would certainly agree. But in my view, the British Prime Minister missed a beat, for surely the most predictable form of officially sanctioned lying is the type overseen by accountants.
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Gavekal Research
Udith Sikand
Oct 01st 2015
India’s Still Fertile Forest
Earlier this week India cut interest rates by 50bp, making it one of the few emerging economies to do so in the face of an investor panic that has hit the asset class hard. The central bank’s actions contrast sharply with the 2013 “taper tantrum” when it was forced to ramp up rates to rein in inflation and prevent capital flight. The action shows that India has a fundamentally better macro-economic positioning than its EM peers, and in our view...
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Gavekal Research
Sep 30th 2015
QSCB: What Is The Trade Slowdown Telling Us?
For the first time since the 1970s global trade is growing more slowly than global GDP, and if anything this growth is decelerating. One explanation is that slower world trade is a symptom of weak global demand, and perhaps a harbinger of worse economic news to come. That is possible, but in this Quarterly Strategy Chartbook we argue that the trade slowdown reflects structural changes in the world economy, and signals that a new phase of...
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Gavekal Research
François-Xavier Chauchat
Sep 30th 2015
Why Big Caps Are Still Blighted
Big cap stocks globally have had a horrible 2015 with the Volkswagen emissions scandal being just the latest “uncorrelated shock” to hit the sector. In Europe, German utilities RWE and E.ON have lost more than half of their market value, while oil and commodity producers everywhere have been hurt by a collapse in the price of their wares. Still, “blue chips” got that reassuring moniker because they tend to be the highest value counters on the...
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