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E.g., 26-09-2020
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    Gavekal Dragonomics

    Local Governments Will Lead On Property

    Even as China’s property market has experienced an unprecedented decline, central government policymakers have kept a tight leash on official support. However, given growing signs of a lasting disruption to the sector, Rosealea believes that Beijing will tolerate more ambitious municipal efforts to keep local markets afloat.

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    Gavekal Research

    Money, Value And The Markets

    Above all, economics is the study of why goods and services have value and why these values are constantly changing. This study is greatly complicated by the fact that there are two different sources of value. In Gavekal-speak, we call these “scarcity” value (think jewels) and “efficiency” value (think tools). So the key question becomes not only “why do things have value?” but also “why do the relative values of scarcity and efficiency change...

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    Gavekal Dragonomics

    Terrible But True

    Given the extent of China’s coronavirus lockdown, it’s not surprising to see double-digit declines in economic indicators. The real surprise is that the statistics bureau did not fudge the data, as analysts expected it would, and printed numbers bad enough to be plausible. This suggests authorities will be pragmatic about the growth impact for 2020.

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    Gavekal Research

    What I Know

    In fraught times, Charles has decided to keep it simple and focus only on what he knows. In this piece, he considers changing relationships between oil prices, long-bond rates, US equities and the dollar and offers various approaches that could help investors survive the bear market.

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    Gavekal Research

    The Conditions Needed For A Bottom

    Financial markets are now in full-blown panic mode. For investors, the key question is: What will it take for markets to form a bottom, and when will this happen? No one can answer with any precision. However, it is possible to discern the broad conditions needed to allow the markets to find a bottom. We are nowhere near them yet.

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    Gavekal Research

    What US$35 Oil Means For The US

    Much of the commentary on the -30% downward breakout in the price of oil over the last couple of weeks has focused on the negative fallout for the US economy. The demand destruction caused by Covid-19 which initiated the oil price fall is a clear economic negative. Yet cheaper energy also promises positive effects. KX weighs the forces at work.

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    Gavekal Dragonomics

    Despite Shortages, Inflation Will Cool

    China’s consumer-price inflation is now around an eight-year high, driven primarily by continued pork shortages due to the African swine fever and exacerbated by the Covid-19 lockdown measures. That said, headline inflation figures are ticking down, a trend Ernan expects to continue in the coming months with an assist from lower oil prices.

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    Gavekal Research

    What Goes Around Comes Around

    Amid the Covid-19 outbreak and the Saudi-Russia oil price war, markets are essentially priced for a scenario in which the US government does little in response, leaving the policy reaction to the Federal Reserve. While this may be the most plausible scenario, other possible US government actions, at home and abroad, have different implications for markets.

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    Gavekal Research

    A Hand Grenade In A Bloodbath

    If you ever wondered what would happen if someone lobbed a hand grenade into a bloodbath, now you know. Markets were always going to be shaky on Monday, as it became increasingly clear that the US is set to see a sharp rise in recorded coronavirus cases. Then, on Friday Russia walked out of the Opec+ oil producers’ cartel, initiating an all-out price war in the oil market.

    1
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    Gavekal Dragonomics

    Limited Help For Struggling SMEs

    Chinese policymakers have announced a wide range of monetary and fiscal measures intended to help the smaller firms hit hardest by the Covid-19 outbreak. The helpfulness of these measures will likely only be marginal; however, Thomas, Xiaoxi and Wei are cautiously optimistic that most SMEs can still weather the ongoing crisis.

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    Gavekal Dragonomics

    A Month Of Lost Wages

    As the rise in new cases of Covid-19 in China has slowed, provinces are easing their drastic restrictions on movement and businesses are reopening. But the extended shutdown has already imposed great costs on migrant workers. Ernan estimates lost wages will be 3-4% of annual household income, though with a smaller impact on total consumption.

    2
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    Gavekal Dragonomics

    The Worst Is Yet To Come For Steel

    Steelmakers have continued production despite a precipitous drop in demand, resulting in a short-term inventory glut. As Rosealea explains, this will lead to continued downward pressure on steel prices, at least until the construction sector recovers from the coronavirus crisis and drives demand back up to meet supply.

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    Gavekal Research

    Doing On Monday What We Wish We’d Done On Friday

    Monday was the epitome of Charles’s observation that in a down-market, the temptation to sell on Monday what you wish you’d sold on Friday can become overwhelming. As markets sold off on Monday following a weekend of bad news, the following developments seemed especially relevant.

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    Gavekal Research

    Far From Priced In

    Asian markets switched to risk-off mode Monday as investors reacted to further coronavirus news outside of China. Yet in onshore markets, investors are optimistic that the economy will quickly normalize as the spread of the virus comes under control, and that the central bank will provide policy easing. Neither belief looks well-founded at the moment.

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    Gavekal Research

    Q&A On The Coronavirus Situation

    Louis spent last week meeting with clients in the US and discussions centered on the coronavirus situation. His starting point is that the Chinese authorities now have every incentive to overstate, rather than understate, the severity of the viral outbreak. He explores the impact on growth in the rest of the world and asset price movements.

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    Gavekal Research

    The Risk Of Falling Behind The Epidemic Curve

    China’s government was slow off the mark in responding to the initial outbreak of the new coronavirus. Although the government is now fully mobilized to fight the outbreak, it risks falling behind the curve again—this time in responding to the economic damage wrought by its extended shutdown of normal life and business activity.

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    Gavekal Research

    Back To Work, Not Back To Normal

    China’s businesses are starting to get back to work, but the economy is still very far from normal. On Monday, the extended holiday declared by the government to help contain the coronavirus outbreak came to an end (except in Hubei province). But most businesses still face great difficulty in resuming their normal activities.

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    Gavekal Research

    Don't Count On Oil To Fall Further

    Nowhere in markets has the impact of the Wuhan flu made itself felt as forcefully as in the oil price. The price of Brent crude has fallen -24% in just four weeks to US$54.58/bbl on Wednesday morning in Asia on fears of massive demand destruction in disease-hit China. WTI has fallen by a similar amount. This slide has great immediacy for investors in the energy sector.

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    Gavekal Dragonomics

    The Long And Short Of Covid-19

    There is now enough information available to begin to make useful judgments about both the short term and long term impact of the Covid-19 outbreak. In this extensive analysis, Arthur examines the health risks posed by the virus, its economic impact, and likely political fallout.

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    Gavekal Research

    How Sturdy Are The Zeitgeist's Five Pillars?

    The investment zeitgeist can be thought of as a set of assumptions that investors hold about structural growth drivers, key prices and policy approaches. An investment manager should understand what makes up the zeitgeist and how it is changing. Louis outlines five foundational pillars that he considers integral to the current situation.

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