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Gavekal Research
François-Xavier Chauchat
Feb 21st 2012
Has Germany Won?
My colleagues have argued that the euro can only be saved if Germany supports a full fiscal union and stops straitjacketing the ECB (see for example, Euro Woes And German Culpability)—and that almost nothing that has been done up to now deserves any praise. My view is slightly different: I think there is a case to be made that Germany is already on its way to saving the euro. The fiscal compact agreed to last month by 25 out of 27 EU member...
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Gavekal Research
Charles Gave
Feb 21st 2012
Blind Men Looking At Money
Over the past year, we have published a number of debates on the euro, which generated vigorous client feedback, from the logical “isn’t it obvious that, if the euro continues as presently constructed, then it won’t”, to the somewhat tasteless “I was at Disney World this weekend and saw the Euro wearing a Make-A-Wish T-Shirt”. But at the heart of every one of these debates was a simple question—namely, what is money?
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Gavekal Research
Joyce Poon
Feb 20th 2012
Liquidity Boost For Chinese Equities
Last week we noted that domestic Chinese A-shares have lagged their Hong Kong listed H-shares counterparts because H-shares reflected an expectation of Chinese policy easing, while A-shares reflected the present reality that mainland liquidity remains fairly tight (see The China A vs H Share Gap Widens). That may now change, thanks to the 50bp cut in the bank reserve requirement ratio announced over the weekend by the People’s Bank of China (PBC...
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Gavekal Research
Cathy Holcombe
Feb 20th 2012
A Checkup On Asia's 'Building Craze'
Asia’s emerging economies may spend US$8trn on infrastructure before this decade is out, if they follow the ADB’s recommendations. That is, obviously, a lot of money: it is bit more than the total pre-tax corporate profits earned by US companies in the past ten years (US$7.6trn, based on the flow of funds data); and a lot more than estimated annual gross domestic savings in Asian emerging markets of US$5trn. Even big-spender China took about a...
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Gavekal Dragonomics
Janet Zhang, Research Team
Feb 20th 2012
DragonWeek - Monetary Easing Counters Pressure From Bank Deposits
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Gavekal Research
Louis Gave
Feb 17th 2012
Another Round Behind Achilles’ Chariot?
Most investors that we have met in recent months tell us that they feel like Hector, being dragged around and around on the back of Achilles' chariot. And to be sure, the past few quarters have been one long series of sharp rallies (as we have just experienced), punctuated by sharp sell-offs that bring us back just where we started. Behind this constant to and fro lies a simple reality, namely that markets are made at the margin. And lately...
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Gavekal Dragonomics
Tom Miller, Research Team
Feb 17th 2012
The Problem Of Chinese Land Reform
In December, war erupted on the streets of Wukan, a fishing village in Guangdong province. The spark was the death in police custody of a village representative who was negotiating with local authorities for compensation for lost farmland. Local farmers chased all officials and police out of the village, blockaded roads, and armed themselves with steel-tipped bamboo spears. In what foreign reporters dubbed the “Siege of Wukan,” the local...
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Gavekal Research
Anatole Kaletsky
Feb 16th 2012
Greek Riots And Orderly Breakups
The latest “strategy to save the euro” will again end in failure. That much is clear from the riots in Greece and from the public warnings by Greek politicians that they will not be bound by any deal negotiated by the technocratic government imposed on them by Brussels and Berlin. Even more important was the corresponding promise from Francois Hollande, the probable President of France after the May election, that he too would reopen the half-...
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Gavekal Research
Rosealea Yao
Feb 16th 2012
The Battle Over Land Policy In China
As Chinese property prices fall, tensions are rising between cash-strapped local governments that want to pump up the market and a central government determined to preserve social stability by keeping a lid on housing costs. So far Beijing is winning. But it cannot ignore for much longer the local-government budget debacle that its housing policy risks creating.
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Gavekal Research
Will Freeman
Feb 16th 2012
Where The Rubber Meets The Road
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Gavekal Dragonomics
Research Team, Nate Taplin
Feb 16th 2012
Coal: Once And Future King
In China’s energy picture, coal—not oil—is king. China relies on coal for 71% of total primary energy use, compared to 23% for the US and Japan and 15% for Europe. China is the world’s biggest coal consumer, by a wide margin (3.8 bn tons burned in 2011), and has surpassed Japan to become the world’s biggest coal importer, accounting for 17% of global seaborne coal shipments.
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Gavekal Dragonomics
Rosealea Yao
Feb 16th 2012
The Battle Over Land Policy in China
As Chinese property prices fall, tensions are rising between cash-strapped local governments that want to pump up the market and a central government determined to preserve social stability by keeping a lid on housing costs. So far Beijing is winning. But it cannot ignore for much longer the local-government budget debacle that its housing policy risks creating.
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Gavekal Research
Louis Gave
Feb 15th 2012
Did The BoJ Just Lay Down Its Cards?
Jacques Rueff famously said that inflation subsidizes expenditures that give no returns with money that does not exist. According to this definition, yesterday’s decision by the BoJ to increase its asset purchase program from the existing ¥55trn to ¥65trn, all of which will be done through an additional purchase of long-term JGBs before the end of this year, should help the BoJ hit its new objective of a 1% annual increase in CPI. A reality...
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Gavekal Research
Louis Gave
Feb 14th 2012
Where Will US Growth Come From?
In our recent research, we have argued that the best possible outcome for the US would be for headline GDP to remain above “stall speed” but that private sector growth would be very decent while the public sector would languish. This is what we saw in 4Q12 based on preliminary figures—a headline growth rate of 2.8% annualized vs a larger 4.5% expansion for the private sector and a –4.6% contraction for the public sector. As the chart below shows...
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Gavekal Research
Gavin Bowring
Feb 14th 2012
Bank Indonesia Bets On Growth
Last week we explained the structural reasons why Indonesia is unlikely to realize the economic growth potential that has made it one of the darlings of emerging-market investors (Indonesia’s Missed Opportunity). This week we offer a more optimistic interpretation, based on a fascinating battle now brewing between the central bank, Bank Indonesia, and the commercial banks. In most countries, commercial banks lend recklessly until the central...
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Gavekal Research
Joyce Poon
Feb 13th 2012
The China A- vs. H-Share Gap Widens
Over the past four months Chinese companies’ Hong Kong listed H-shares have been on a tear, but their domestic A-shares have lagged. Since last December 1 H-shares have risen 20% while A-shares have been flat. A-shares have done better since the beginning of the year but have still risen only half as much as their Hong Kong counterparts. This discrepancy arises from the differing liquidity environments of the two markets. Hong Kong reflects...
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Gavekal Research
Pierre Gave
Feb 13th 2012
US Consumers: A Reason To Spend
On Friday, US trade data offered more evidence that the US consumer is flexing his muscles again. Consumer goods imports rose 2.2% MoM in December, and were up 6.3% YoY for the full-year, to US$513bn. This resilient domestic demand is also visible in recent retail sales data, as well as in the performance of retail stocks (consumer discretionary stocks are up by +24% over the past two quarters, the second best sector after industrials).
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Gavekal Dragonomics
Janet Zhang, Research Team
Feb 13th 2012
DragonWeek - Inflation Pressure Will Be Modest In 2012
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Gavekal Research
François-Xavier Chauchat
Feb 10th 2012
The French Establishment Wins
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Gavekal Research
Janet Zhang
Feb 10th 2012
The Chinese New Year Effect on Data
The first driblets of economic data from China in January are not encouraging: inflation bounced back up while electricity production, auto production and exports all fell. Is the hard landing upon us? Not so fast. Most of the data were seriously distorted by a lunar new year effect, and are likely to bounce back to less scary levels in February. Only the combined January-February data will give an accurate picture of just how much the Chinese...
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