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E.g., 04-12-2021
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    Gavekal Research

    India’s New Industrial Policy

    Industrial policy is back in vogue, especially in India. Prime Minister Narendra Modi’s government will spend US$27bn on subsidizing manufacturing, as it seeks to forge a “Self-Reliant India.” Given India’s unhappy history of chasing self-sufficiency, this raises concerns. Yet “self-reliance” does not necessarily mean protectionism, argues Tom.

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    Gavekal Research

    The Oil-US Dollar Interaction

    The past year has seen two important developments in the oil industry. Firstly, US oil production has rolled over by between -2mn and -2.5mn bpd and there are reasons to think this situation lasts until next year. Secondly, oil prices, which were in a clear bear market between late 2018 and early 2020 are now in a bull market. Hence, as US oil production falls and oil prices rise, energy may again become a major contributor to the US trade...

    4
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    Gavekal Research

    Chips And Cross-Straits Tensions

    Taiwan’s position at the core of the global semiconductor industry has never looked more secure: it is now the undisputed leader in advanced chip manufacturing. But does that success increase the risk of military aggression from China? In fact not. As Dan argues in this piece, semiconductors are not a plausible trigger for a hot conflict.

    5
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    Gavekal Research

    Productive Bubbles And Unproductive Bubbles

    There are two kinds of bubbles: bubbles in productive assets like railways, and broadband lines, and bubbles in scarcity assets like tulips and gold. In turn, these bubbles can be funded through equity, or by debt. The best kind of bubble is in productive assets, funded by equity and the worst kind is in unproductive assets, funded by debt, especially if the leverage is hidden.

    1
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    Gavekal Research

    Strategy Monthly: The Threat Of Rising Inflation And Yields

    The roll-out of vaccines in the US is upending the investment environment, as the focus shifts beyond the pandemic to full-throttled economic recovery. With both monetary and fiscal policy set to remain loose, nominal growth could soon rip. Hopes for “normalization” have driven up inflation expectations and freaked out bond investors. Those getting fixed interest are right to be unnerved, as production capacity is fairly tight, inventories are...

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    Gavekal Research

    What I’ve Given Up For Lent

    For Lent this year I decided to give up investing in gold miners. My priest said this was like giving up broccoli; for Lent you are meant to forgo something that feels good. I replied that the Church banned self-flagellation in the 14th century; by giving up gold, I would free my mind for higher purposes. I still ended up with three “Hail Marys” and three “Our Fathers” for penance.

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    Gavekal Research

    Inflation And The Stock Market

    Despite a roiling US bond market sell-off, equity investors had until Thursday taken comfort from the Federal Reserve saying it would stay easy for longer. They were also fairly relaxed about a gentle rise in inflation, which seemed to be part of a "normalization" process as Covid-19 vaccines do their job and activity picks up. Charles and Didier are not so sure, and in this paper test the notion that limited inflation can, in fact,...

    2
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    Gavekal Research

    Webinar: Europe And The Politics Of Exiting The Pandemic

    Europe is at a strange juncture, as governments remain committed to massive fiscal and monetary support and refuse to rush into any economic reopening before Covid vaccinations are deployed. Yet despite this collective risk aversion, Italy has appointed a new technocratic government run by Mario Draghi that looks to have broad political support and a fairly radical plan for change. Our team explored Europe's exit from the pandemic and asked...

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    Gavekal Research

    Video: Bitcoin—Money Or Snakeoil?

    Will Denyer examines the forces behind the eye-watering run-up and eye-popping volatility of bitcoin, and delves behind the near-term moves in crypto-currency markets to ask whether bitcoin and its ilk will ever gain traction as a unit of account, means of exchange or store of value.

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    Gavekal Research

    Emerging Markets And Rising Yields

    As 10-year US treasury yields have pushed higher, investors have begun to reassess their enthusiasm for emerging market assets. Historically, rising US yields has seldom been accompanied by emerging market outperformance. Yet rising US yields are not necessarily negative for EMs, and there are reasons to think this time may well be different, at least for some EMs.

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    Gavekal Dragonomics

    The Fate Of A Liquidity-Driven Rally

    The writing is on the wall for China’s post-Covid bull market as the underlying credit and profit cycles that typically drive prices over the medium term are turning down in 2021. In this report, Thomas explains why liquidity flows can trump these fundamentals for a while, but not indefinitely.

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    Gavekal Research

    It’s A Policy-Driven Market

    US bond yields are rising as the growth outlook is boosted by the vaccine roll-out and sustained monetary and fiscal stimulus. US value stocks and the sectors hit by Covid restrictions are ripping. Growth investors, in contrast, are spooked about this situation, as much of their worth comes from earnings discounted far into the future. The investors' reactions to Federal Reserve Chair Jay Powell’s Congressional testimony on Tuesday reminded...

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    Gavekal Research

    Beautiful In Heaven

    Like the players on a rugby team, assets in a portfolio should both be all-rounders and excel at a specific job. For four decades, US treasuries both offered a stream of positive real yields and provided an anti-fragile portfolio hedge in times of market turbulence. Now however, Louis argues that US treasuries are at risk of falling from the position of anti-fragile favor.

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    Gavekal Dragonomics

    To Hold Back The Tide Of De-Industrialization

    China’s government is focusing on a new economic metric: the manufacturing share of GDP, which looks to feature in the next five-year plan. Rather than accept de-industrialization, it wants “stability” in manufacturing. In this piece, Andrew explains why China is worried about the fall in the manufacturing share, and whether it can be stopped.

    2
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    Gavekal Research

    No Exit

    “We are not here to close spreads,” proclaimed European Central Bank president Christine Lagarde last March. “This is not the function or the mission of the ECB.” After the market took her at her word, Lagarde hastily back-tracked, and the ECB duly spent the following months doing exactly what Lagarde had said it would not.

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    Gavekal Research

    Can Covid Vaccines Cure The Pound?

    The British pound has been the strongest major currency so far this year, contrary to Anatole’s expectations at the end of 2020. In this piece he outlines three reasons for sterling’s outperformance, but maintains that in the long term the pound will be forced lower.

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    Gavekal Research

    The Changing Composition Of US Inflation

    Investors are all in a tizz about US inflation as the economy begins to normalize and the effect of a huge fiscal stimulus is factored into calculations. Inflation expectations are above the Federal Reserve’s target at 2.2% and energy base effects mean the personal consumption expenditure reading is sure to rise from December’s 1.3%. So far, market action has been focused in the bond market (see A Discussion On Treasury Yields) but equity...

    2
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    Gavekal Research

    Draghi’s Reform Plan And Asset Prices

    Newly installed as Italy’s prime minister at the head of a broad coalition, on Wednesday Mario Draghi outlined an ambitious agenda of structural reforms. Notably, the former European Central Bank chief wants to oversee a root-and-branch overhaul of Italy’s tax system, while investing in the education system and streamlining public administration. His first task will be to steer Italy through the pandemic. But beyond that, Draghi’s plans could...

    0
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    Gavekal Research

    A Discussion On Treasury Yields

    In recent days, long-dated US treasury yields have made a clear move higher. Unless there’s a violent turnaround in the coming days, February will mark the seventh consecutive month of flat-to-negative returns for treasuries This is an important development, with potentially far-reaching investment implications. Anatole and Louis discuss the outlook for yields, and the consequences for asset prices.

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    Gavekal Research

    Webinar: Emerging Markets In The Next Phase Of The Pandemic

    Emerging markets have had a strong run, fueled by floods of stimulus in developed markets. Much of that money has flowed to Asia, where export sectors have thrived on rich-world consumers’ demand for electronics and other goods. The question is whether Asian EMs will be able to keep up this outperformance as they lag far behind in the vaccination race. Our team addressed these issues, and considered whether commodity-based EMs can again have...

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