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E.g., 06-06-2020
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    Gavekal Dragonomics

    A Charm Offensive For Supply Chains

    As multinationals in China face growing pressure to shift their supply chains elsewhere, China’s government is doing everything it can to hold on to them. As Dan explains in this piece, China’s ability to get businesses back on their feet after the Covid-19 lockdown is a great advertisement for its attractiveness as a place to do businesses.

    2
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    Gavekal Research

    Picking Winners In Asian Currencies

    A terms of trade improvement and the relative resilience of electronics demand have helped support Asian currencies through the coronavirus crisis despite the deep contraction in world trade. Now as the world emerges from lockdown, any recovery in external demand, coupled with any revival of risk appetite that sees capital flow out of the safe haven US dollar, will be positive for Asian currencies.

    2
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    Gavekal Research

    Four Reasons To Fade The Rebound

    After advising readers not to buy into the March market rebound, Anatole has reviewed the case he made for doubting that a perfectly executed Keynesian recovery was likely—and he did this as Gavekal’s fully avowed Keynesian economist. After a dark night of the soul, he remains skeptical that economic activity will quickly return to anything resembling pre-Covid-19 normality.

    7
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    Gavekal Dragonomics

    The Chill On Corporate Capex

    The Covid-19 lockdown led to a historic collapse in corporate capital expenditure in early 2020, but what comes next? In this piece, Thomas introduces a new model for understanding China’s investment cycle. Private-sector capex should stay weak in the second half of 2020, lagging public-sector infrastructure spending, but rebound in 2021.

    0
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    Gavekal Research

    Excess Money And Where To Find Value

    US cash balances have exploded in recent months and at some point a portion of this “excess” is likely to be deployed into financial markets. That may help push asset prices up further, but Will argues that fairly extreme valuations mean not all asset classes will rise together.

    2
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    Gavekal Research

    The Kitsune Market (Part IV)

    Over recent weeks, Louis has examined in detail nine “Kitsune” tail risks which could blindside financial markets in the wake of the Covid-19 crisis. But in contemplating these tail risks, Louis has been forced to wonder if he has missed the forest for the trees, overlooking perhaps the greatest risk of all for investors: that the 40-year inverse correlation between equities and bonds may be breaking down.

    4
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    Gavekal Dragonomics

    Infrastructure Faces Fiscal Constraints

    Hopes for an infrastructure boom are rising after China’s legislature approved a record amount of bond sales. But as Wei explains, the Ministry of Finance’s conservative budget targets will still limit how much localities actually spend. Infrastructure investment is headed for around 10% growth in 2020, not enough for a very strong recovery.

    2
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    Gavekal Research

    Hong Kong Q&A (Part III)

    China has responded to prolonged political dissent in Hong Kong by proposing a tough anti-subversion law that threatens the city’s role as an international financial center. It remains unclear how this will be imposed on a common law-based legal system with a polar opposite jurisprudence to that on the Mainland. Louis tries to answer some of these questions.

    5
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    Gavekal Dragonomics

    The Truth About Unemployment

    China’s government is promising to deliver stability in employment this year, although it has not made a full accounting of how the Covid-19 lockdown affected jobs. In this report, Ernan presents comprehensive estimates of the scale of job losses: in the range of 60-100mn. This is far more than China’s social safety net is designed to handle.

    2
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    Gavekal Research

    US Reopens Without A Covid Spike—So Far

    As the US moves to reopen its economy from Covid-19 lockdowns, a key question is whether these reopenings will engender a resurgence of the epidemic, thereby retarding the pace of economic recovery. The risk cannot be ruled out, and the large uncertainties about how the coronavirus works means we should be wary of definitive forecasts. Yet so far, about a month after the initial reopenings, there is not much evidence of a resurgence.

    0
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    Gavekal Dragonomics

    The Corporate Bond Crisis That Wasn’t

    China’s corporate bond market has not been bothered by the biggest shock to the economy in decades. In this piece, Xiaoxi explains why, since the beginning of the Covid-19 pandemic, there has been no surge in defaults, spreads have barely widened and new issuance has surged. A continued bull market in government bonds will be more good news.

    0
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    Gavekal Research

    Surviving A US$100bn Funding Gap

    Developing economies are struggling from reduced trade and harder access to capital. They also face a US$109bn cut in remittance income this year as construction sites in the rich world close, ships stay in port and restaurants are shuttered. This could spur a spiral of poverty and protest that ends with debt defaults that even suck in well-managed emerging markets.

    2
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    Gavekal Research

    The Upside For Autos And Housing

    As the US begins to reopen for business, some segments of the economy will bounce back faster than others. Among the more vigorous will be the auto and housing sectors, where activity will be lifted by a favorable combination of tailwinds. Investors should consider positioning for a strong recovery in both the automobile and residential construction sectors.

    0
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    Gavekal Research

    India's Mini Bazooka

    India’s finance minister yesterday outlined a US$265bn fiscal package to save the economy. It looks to be just enough to stop a slide into depression but not much more. A worrying factor in its response is an apparent lurch towards protectionism, which would undermine any gains made from much-needed reforms to land and labor markets

    2
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    Gavekal Research

    Japan's Stealth Bull Market

    In times of great market uncertainty, like today, investors should seek sanctuary in the stocks of companies that are cheap, enjoy positive cash flows, have plenty of cash on their books, and which are quoted in an undervalued currency. Today, Charles writes, the shares of non-financial companies in Japan fit the bill on all four counts.

    12
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    Gavekal Research

    The Kitsune Market (Part III)

    In this third part of a series assessing risks thrown up by massive government interventions to stop Covid-19 lockdowns turning into an economic depression, Louis turns his sights on efforts to prevent bankruptcies at all costs. He also considers the rapidly fraying US-China relationship and existential choices faced by Saudi Arabia as it decides how to handle a collapse in oil prices.

    5
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    Gavekal Dragonomics

    The Return Of Special Treasury Bonds

    China’s government will once again issue “special treasury bonds” this year, a tool last used in 2007, but has not yet revealed how the funds will be used. In this piece, Wei surveys the options on the table and argues these special bonds are more likely to fund indirect support to the economy rather than to ramp up direct fiscal stimulus.

    0
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    Gavekal Research

    Hard Times For China's Soft Power

    Public opinion over China’s responsibility for the Covid-19 pandemic has hardened across the developing world. On the African continent matters have been made worse by simmering rows over the treatment of Africans by Chinese, both in China and in Africa itself. As the resentment spreads, writes Tom, it threatens to undo decades’ worth of effort by Beijing to apply “soft power with Chinese characteristics”.

    9
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    Gavekal Dragonomics

    Military Fusion Sparks US Reaction

    The US government has unveiled new rules that will make it more difficult for US companies to sell high technology to Chinese firms with any military connections. In this piece, Dan explains the risks of these new rules for both US companies and the many Chinese firms participating in their government’s “military-civil fusion” campaign.

    2
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    Gavekal Research

    The Benefit Of Panicking Early

    Among industrialized nations, Taiwan stands out as the least affected by the Covid-19 pandemic. Taiwan chose to “panic early” by barring entry to foreign travelers, enforcing strict quarantines and assiduously tracking potential infections. The payoff has been no material disruption to domestic activity, which should lead to continued outperformance of the Taiwan dollar.

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