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Gavekal Research
Nick Andrews
May 10th 2019
Video: Is The Worst Over For The Eurozone?
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?
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Gavekal Research
Louis Gave
May 10th 2019
The Motivation Behind Trump's Tweets
Since becoming president, Donald Trump has made it clear that he sees the S&P 500 as the real-time judge of his White House performance. Why, then, did Trump on Sunday send a tweet alleging that China had backed off from agreed positions in the US-China trade talks, and in so doing rattle a market priced for Goldilocks?
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Gavekal Research
Charles Gave, Louis Gave
May 09th 2019
Audio & Transcript — Gavekal Research Call May 2019
Investor concern this week is centered on the US-China trade negotiations, but Charles Gave and Louis Gave wonder if investors aren’t missing another risk, namely, that the world might be shifting from a deflationary to an inflationary environment. In our monthly Conference Call yesterday, they outlined arguments for why this may be the case, and what it would mean for portfolio construction.
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Gavekal Dragonomics
Lance Noble
May 09th 2019
Where Can Industrial Policy Work?
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.
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Gavekal Research
Tan Kai Xian
May 09th 2019
A Better Time For A Trade War
For equity investors, there is a never a good time to have a trade war. Nevertheless, if there must be one, the US stock market is now better placed to ride out a US-China tariff conflict than it was a year ago. That’s just as well. Chinese negotiator Liu He is set to arrive in Washington on Thursday for the latest round of trade talks which are going down to the wire.
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Gavekal Research
Udith Sikand
May 08th 2019
Gauging The EM Collateral Damage
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.
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Gavekal Research
Louis Gave
May 08th 2019
The Case Of The Missing Inflation: Chinese Foreign Exchange Policy
As the US-China trade talks enter a critical phase, all eyes are on a new meeting of officials and whether it can can break the log jam. Louis, however, wonders if investors may be missing a trick by purely focusing on issues of market access, enforcement and tariffs. Adjustments in the value of the renminbi may yet be the real story of any deal.
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Gavekal Research
Louis Gave
May 08th 2019
Series: The Case Of The Missing Inflation
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...
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Gavekal Research
Charles Gave
May 07th 2019
A Reverse-Engineered US Inflation Indicator
In the Strategy Monthly I presented a fairly simple rule to show whether an economy is in the top, or the bottom half of the Four Quadrants framework. To show that the rule worked, I laid out relationships between the "rule" and a range of other useful indications of a price environment shift. Here, I capture all of these relationships in a simple, revised decision rule.
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Gavekal Dragonomics
Andrew Batson
May 07th 2019
Xi's Pivot To The Private Sector
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.
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Gavekal Research
Tan Kai Xian, Will Denyer
May 06th 2019
How Long Can Productivity Contain US Inflation Pressure?
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?
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Gavekal Research
Arthur Kroeber
May 06th 2019
Trade Deal Delayed, Not Yet Denied
Any trade negotiator will tell you that the last yard is always the hardest. That is obvious now in the US-China trade talks, which were thrown into doubt by Donald Trump’s weekend tweets threatening to hike tariffs on US$200bn of imports from China from 10% to 25% this Friday if a deal is not done.
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Gavekal Research
Udith Sikand
May 03rd 2019
Video: India’s Acceleration Phenomenon Explained
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.
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Gavekal Research
Louis Gave
May 03rd 2019
Q&A On The Hong Kong Dollar Peg
The recent publication of a letter on the future of the Hong Kong dollar peg by Gavekal’s good friend Kyle Bass has triggered a flood of questions on the topic from clients. Now, Louis admits that there may be some home bias to this conviction that the Hong Kong dollar peg is not under threat. But in this paper, he sets out his answers.
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Gavekal Research
Charles Gave
May 03rd 2019
Inflation And The Gold Fix
When the market rate of interest for a long period has been held abnormally low relative to returns on invested capital, financial engineering takes off with huge debt issuance, making a chaotic denouement of the credit cycle unavoidable. To prepare for such an event, an equity portfolio hedged with gold can reduce volatility and raise returns.
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Gavekal Research
Nick Andrews
May 02nd 2019
The Message In Eurozone Money
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.
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Gavekal Research
Charles Gave
May 02nd 2019
Strategy Monthly: The Inflation Shift And Portfolio Construction
Despite inflation remaining muted, Wednesday saw the Federal Reserve stand pat on interest rates. Having switched to an overly dovish stance early this year, Fed Chairman Jay Powell remains wary of changing tack and easing policy as he worries about inflationary pressure bubbling up from an economy that looks to be fully occupied. For his part, Charles is less nuanced and believes the US will shortly flip over into an environment where inflation...
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Gavekal Research
Udith Sikand
May 01st 2019
Look Through The Trade Data
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...
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Gavekal Dragonomics
Tom Miller
May 01st 2019
Struggling To Reform The Belt And Road
China’s much-criticized Belt and Road Initiative will become “open, green and clean,” Xi Jinping pledged last week. Do these new promises mean an end to the debt traps, kickbacks and white elephants that the infrastructure spree has been accused of fostering? In this piece, Tom argues Beijing will struggle to fundamentally reform the initiative.
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Gavekal Research
Thomas Gatley
Apr 30th 2019
The World's Biggest Bull Loses Steam
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.
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