Gavekal Research

Cedric Gemehl

May 23rd 2019

On Wednesday the OECD added its voice to the chorus calling on the German finance ministry to open its fiscal tap and juice up economic growth with additional public spending on investment. Yet although the outlook for external demand is darkening, investors should not hold their breath for a sizable fiscal boost.

Gavekal Research

Anatole Kaletsky

May 22nd 2019

When something unexpected happens and the market moves against you, it is usually best to cut your losses. But sometimes it is worth indulging the contrarian instinct. This month most of the pound's gains in the first quarter have been given up and sterling’s position looks dicey. But sterling bulls should not cut their losses. In fact, they should consider doubling down.

Gavekal Dragonomics

Dan Wang

May 21st 2019

The US government has China’s most prominent technology firm in a stranglehold. The question now is whether the US government continues to strangle Huawei until it goes out of business, or chooses to eventually stop squeezing and allow a weakened Huawei to keep operating under some limitations. In this report, Dan explores the possible scenarios.

Gavekal Research

Arthur Kroeber

May 20th 2019

Keeping track of all the pieces of the US-China confrontation has become a full-time job. But the chaos and uncertainty of the past couple of weeks has begun to resolve itself into fairly clear patterns, even if the outcomes remain in doubt. Three main conclusions emerge from last week’s activity, and none of them are particularly reassuring.

Gavekal Dragonomics

Long Chen

May 17th 2019

Since the US slapped fresh tariffs on Chinese exports a week ago, the renminbi has fallen, but by less than when the first round of tariffs were imposed last year. In this video interview, Chen Long discusses why that is, and how far China’s currency is likely to fall if things get worse.

Gavekal Research

Nick Andrews

May 16th 2019

By putting off for six months its decision whether or not to impose a 25% tariff on all imports of passenger cars and car parts on national security grounds, the US administration bowed to expedience on Wednesday. In theory, the threat of auto tariffs remains on the table. In practice, the six month delay has robbed the proposal of much of its credibility.

Gavekal Research

Charles Gave

May 15th 2019

It is extremely unfashionable to say so, but Donald Trump’s campaign to bring manufacturing industries back to the US by slapping tariffs on goods imports may not be quite the act of economic illiteracy most professional practitioners of the dismal science would have you believe. On the contrary, it could well be positive for US growth, living standards, and market outperformance.

Gavekal Research

Long Chen

May 14th 2019

In response to the escalation of the US-China trade war, Chinese policymakers are likely to step up their easing measures. This should help support domestic demand. But as Chen Long argues in this piece, the effect of policy easing, coupled with the impact of increased tariffs on China’s exports, will add to downward pressure on the renminbi.

Gavekal Research

Anatole Kaletsky

May 13th 2019

Anatole returns to the framework he set out in November 2017, examining the 10 key risks that could threaten global markets over the next 18 months and which investors should monitor closely—and he comes to some surprising conclusions about the central locus of global dangers.

Gavekal Research

Nick Andrews

May 10th 2019

Eurozone economic growth was modest in the first quarter of 2019, but it was still stronger than most economists had expected, with Germany avoiding a recession and Italy returning to growth. Meanwhile eurozone equity markets are up a respectable 13% over the year to date. Does this mean Europe is emerging from its economic soft patch?

Gavekal Dragonomics

Lance Noble

May 09th 2019

The Trump administration’s trade war has targeted China’s ambitious industrial policy, which China clearly has no intention to abandon. But will that industrial policy work? In this report, Lance explains his eight-point system for evaluating industrial policy’s odds of success, and tests it on electric vehicles, airplanes and pharmaceuticals.

Gavekal Research

Udith Sikand

May 08th 2019

After Donald Trump’s weekend tweets, trade war is once again the center of attention for investors. The perceived probability of an escalation has risen sharply, and risk assets have sold off. Asian emerging markets have not escaped the rout, but it would be a mistake for investors to treat all Asian emerging markets equally.

Gavekal Research

Louis Gave

May 08th 2019

As the Federal Reserve launched the second round of its quantitative easing, the fear was that the Fed’s unorthodox monetary policy would ignite a new round of inflation throughout the world, with dramatic effects on asset prices. After all, most asset prices are driven by the interaction of inflation and economic activity. But inflation failed to materialize, and even fell from more than 3% globally in 2010 to negative territory in 2015. These...

Gavekal Dragonomics

Andrew Batson

May 07th 2019

The improved economic outlook for China in 2019 owes a lot to an effective stimulus and progress toward a trade deal. But it has also been driven by top leader Xi Jinping’s surprising political pivot from champion of state enterprises to patron of the private sector. In this piece, Andrew examines how sincere Xi’s new stance will prove to be.

Gavekal Research

Tan Kai Xian, Will Denyer

May 06th 2019

April’s US payrolls report showed job creation was stronger than expected and unemployment lower, yet wage pressures were softer. This suggests weaker unit labor costs will allow the Fed to remain dovish, at least for now. All else being equal this is positive for equity investors. The question is: How long can this benign combination persist?

Gavekal Research

Udith Sikand

May 03rd 2019

Multinationals and investors are looking to India to deliver the next great surge in sales of consumer goods and services. But demand will not expand in a linear fashion as GDP increases. The acceleration phenomenon dictates that sales of different products and services will grow in leaps and bounds as cohorts of new consumers surpass key income thresholds.

Gavekal Research

Nick Andrews

May 02nd 2019

The advanced estimate of first quarter eurozone GDP released on Tuesday came as a pleasant surprise. Growth came in stronger than generally expected, while Italy emerged from recession. With the MSCI EMU equity index up almost 17% YTD in local currency terms, the question is whether growth can be sustained over the coming quarters.

Gavekal Research

Udith Sikand

May 01st 2019

After rallying 10% in 1Q19, emerging market equities have hit an air pocket as investors worry about global growth. Given the link between EM profitability and global trade, data showing that activity shrank in both volume and value terms in the three months to February has raised concerns. It hasn’t helped that the Washington side of the US-China trade talks has amped up “no deal” rhetoric in what is slated to be the final run-in of the...

Gavekal Research

Thomas Gatley

Apr 30th 2019

China’s equity bull market has lost steam in the last 10 days after the Politburo adopted a less supportive tone following stronger than expected economic data in March. Even before the announcement, market ebullience had moderated. This is positive for China's stock market development, since it reduces the risk of an over-muscular regulatory reaction.

Gavekal Research

Louis Gave

Apr 29th 2019

The US seems set to run huge fiscal deficits for as far as the eye can see, and it is not clear who is going to fund this indulgence. In the fourth instalment of his “missing inflation” investigation Louis considers the options available to the US Treasury and concludes that hard funding choices will likely be ducked by whoever wins the 2020 election.

Gavekal Dragonomics

Long Chen

Apr 26th 2019

At our seminar in Shanghai, Chen Long presented the outlook for China’s economy and markets. Crucially, the credit cycle appears to have bottomed out, and credit growth should accelerate towards the end of the year. He expects the overall economy to follow suit. He also covered the outlook for capital markets, equities and the renminbi.

Gavekal Research

Anatole Kaletsky

Apr 25th 2019

Now that the S&P 500 has hit a new all-time high and other stock markets have recovered most of the steep losses they suffered last summer, it seems a lifetime since the financial panics of 2018. Investors who bought the dip have enjoyed Wall Street’s strongest quarterly performance in this bull market. After being so well rewarded, how should bullish investors who kept the faith now respond?

Gavekal Research

Louis Gave

Apr 24th 2019

On paper, this should have been a good year for health care stocks: global growth has disappointed, long term interest rates have fallen, the US yield curve for a brief while was inverted and a looming US-China trade deal should see China buy lots of health care gear and drugs from the US. Yet, even though the stars aligned, health care has been the worst performing major US equity sector this year. Notwithstanding a bounce yesterday, the sector...

Gavekal Research

Louis Gave

Apr 24th 2019

The Kitsune, the mythical Japanese fox which portends a change of fortune, has nine tails. Inspired by the unnatural conditions in markets, Louis has identified nine tail risks which could upend the investment world over the short to medium term.