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Gavekal Dragonomics
Rosealea Yao
Feb 20th 2019
The Sunset Of Housing Subsidies
China’s local governments are cutting back their slum redevelopment plans, which points to lower government subsidies for housing in 2019. As a result, Rosealea argues, housing sales are likely to have a deeper decline this year, although Beijing will manage the phase-out of subsidies with a careful eye on how it affects the market.
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Gavekal Research
Anatole Kaletsky
Feb 19th 2019
The Biggest Investment Story Of 2019
Now that stock markets around the world have recovered from the year-end panic of December 2018, it is worth returning to the question I posed here on the first trading day of 2019: was the disappointing performance of equities and other risk assets in 2018 the prelude to a deep and protracted bear market, or a contrarian opportunity to “buy the dip”?
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Gavekal Research
Chen Long
Feb 18th 2019
China’s Credit Cycle Turns
China’s easing of monetary policy is finally showing some results, with total credit growth delivering a surprising rebound in January. This pick-up suggests that the credit cycle has now bottomed out. But, Chen Long argues, the rebound in credit growth is likely to prove moderate, and economic activity will take more time to stabilize.
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Gavekal Research
Dan Wang
Feb 15th 2019
Video: Containing China's Tech Ambitions
More constructive rhetoric suggests the US and China may be about to strike a truce on tariffs and market access. However, that does not mean they are about to bury the hatchet. Powerful groups in Washington want to contain China’s rise as a technological power, and the US has many tools at its disposal even if it drops tariffs.
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Gavekal Research
Will Denyer
Feb 15th 2019
The QT Endgame
A voting member of the FOMC said yesterday that the Federal Reserve should quit shrinking its balance sheet later this year. This was the clearest indication yet that the US central bank will end quantitative tightening one or two years sooner than the 2020-2021 estimate put forward by Chairman Jay Powell last July. I suspect Brainard will get her wish.
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Gavekal Research
Louis Gave
Feb 14th 2019
Thirty Years Later: Tiananmen's Long Shadow
On Monday we published a piece from Louis in which he assessed the three economic fronts where the US and China are doing battle. In this second part of the series, Louis steps back and considers the chief monetary priorities that China has settled on since the tumultuous events at Tiananmen Square almost 30 years ago.
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Gavekal Dragonomics
Ernan Cui
Feb 14th 2019
After The Crash In Car Sales
Is the long boom in China’s car market finally over? In this piece, Ernan takes stock of the prospects for auto sales after 2018’s historic decline. Since that drop was caused by expiring stimulus policies, sales can stabilize and recover. Future growth, however, is likely to be much slower than the industry has become accustomed to.
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Gavekal Research
Cedric Gemehl, Nick Andrews
Feb 14th 2019
What Europe’s Political Ructions Mean
European politics is again heating up. Yesterday saw the Spanish government fail to pass its budget in a move likely to spur fresh elections. Populists in Italy and yellow vests in France are keeping up their campaign of disruption. Given that few of these issues directly threaten the structures of the EU, the question for investors is: Does any of this matter?
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Gavekal Research
Tan Kai Xian
Feb 13th 2019
Fear Not The ‘Earnings Recession’
US earnings growth is clearly slowing. As global growth ebbs and the effect of last year’s US tax cut wears off, 1Q19 will be worse according to US analysts who in aggregate are predicting EPS to fall -1.4%. Some commentators are even declaring an “earnings recession.” Time to take profits for the year and run to the hills? I’d say “no”.
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Gavekal Dragonomics
Dan Wang
Feb 12th 2019
The Long Arm Of US Export Controls
While investors eye the progress of US-China talks to avert tariff hikes, the US is mobilizing on another front. In this piece, Dan explains how the US is preparing for more aggressive use of export controls to disentangle the US and Chinese tech sectors. This can certainly hurt Chinese firms, but will also affect US and other tech companies.
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Gavekal Research
Nick Andrews
Feb 12th 2019
The UK's Limits To Growth
For the British economy, it has been a case of “mustn’t grumble” since the 2016 Brexit referendum. However, the effect of a weak fourth quarter GDP report was to debunk any illusion that Brexit uncertainty has been weathered. Such a reckoning was inevitable with or without Brexit, as the UK has in effect hit limits to its growth.
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Gavekal Research
Cedric Gemehl
Feb 11th 2019
Not Such An Ugly Duckling
A spate of weak data releases last week confirmed Europe as the ugly duckling of key economic regions, and things may soon get worse. The worry is that a weakening external sector negatively impacts the domestic recovery through lower investment and job creation at a time when policymakers face both technical and political constraints.
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Gavekal Research
Louis Gave
Feb 11th 2019
Three Separate Battlefronts In The Unfolding Cold War
As the clash between China and the US intensifies, Louis notes the primacy that Mao Zedong’s guerrilla tactics would have had in forming the current Chinese leadership’s political consciousness and setting a template for the way they handle conflict. As such, he sees the struggle between the two superpowers playing out on three distinct fronts.
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Gavekal Research
Udith Sikand
Feb 08th 2019
EM Balance Sheet Vs Income Statement
Emerging market investors face a dilemma in 2019. Softer relative growth prospects in the US as the initial effects of 2018’s tax cuts wear off, coupled with the easing of the US dollar liquidity squeeze implied by a more dovish Federal Reserve and softer oil price, favor emerging market assets. The question is: how best to implement this view?
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Gavekal Research
Tom Miller
Feb 08th 2019
The Global Car Industry Catches Chinese Flu
If the auto industry is a bellwether of global economic health, then much of the world is looking sick. The second half of 2018 was painful for carmakers in all the major auto markets, and 2019 is shaping up to be as bad. Is this just a passing malady that carmakers will soon shrug off, or a chronic condition they will have to manage for years to come?
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Gavekal Research
Anatole Kaletsky
Feb 07th 2019
Gaming Out Theresa May’s Gamble
Given that the UK prime minister has apparently outfoxed her opponents, why has the pound fallen back below US$1.30? The obvious reason is that Theresa May’s unexpected wins in the UK parliament last week look to have increased the chances of a disorderly “no deal” rupture. In reality, however, the chances of “no deal” are no higher today than they were a week ago as the EU and UK opposition are yielding to May’s pressure.
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Gavekal Dragonomics
Thomas Gatley
Feb 07th 2019
It’s Not 2015 All Over Again
The profits of China’s industrial sector are turning down—but as Thomas argues in this piece, a repeat of the traumatic downturn of 2014-15 is not in the cards for 2019. Heavy industry will hold up better this time around, but consumer-facing sectors will do worse. This downcycle will be more broad-based, but less severe, than the last one.
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Gavekal Research
Charles Gave
Feb 06th 2019
Portfolio Construction In A Malthusian World
The two key questions posed by economics are: why do things have “value” and—over time—how does that “value” change? Thomas Malthus showed why people value things that are scarce, like jewels or a Monet painting Alternatively, David Ricardo and Joseph Schumpeter, showed why its worth owning something that is useful—a “tool” from which goods and services can be made and sold at a price that exceeds their cost of production.
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Gavekal Research
Charles Gave, Cedric Gemehl
Feb 05th 2019
Audio & Transcript — Gavekal Research Call February 2019
In the call yesterday, Charles Gave and Cedric Gemehl presented their views on the economic and political situation in Europe. Cedric outlined key risks facing Europe’s economy. If the worst is avoided, he thinks Europe could get a soft landing. Charles took a different view, arguing that the eurozone was now an irretrievably diverging system.
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Gavekal Research
Will Denyer
Feb 05th 2019
A Looser Fed And Tighter Banks
News flow from the US and beyond over recent months has pointed to an easing of financial conditions. A notable exception has, however, emerged: US commercial banks have stopped loosening lending standards and have started to tighten them—just a touch. I remain constructive, but have gotten more cautious about US risk assets.
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