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E.g., 19-01-2022
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    Gavekal Research

    Markets Or Talking Heads: Which Should We Believe?

    What matters for investors is not whether US inflation is rising, but how fast and how far it will rise, argues Anatole. In this piece he argues that a long-term inflation rate that rises gradually from the pre-Covid average of 1.5% to 2.5% or even 3%, is no cause for alarm—and may represent a welcome regime-change to a more expansionary business environment.

    7
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    Gavekal Dragonomics

    The Consequences Of Slowing Credit

    China’s credit growth is slowing as officials take advantage of stable economic conditions to tackle excess financing. In this report, Wei explains why the downward credit pressure should have little impact on overall economic growth, but will affect liquidity conditions for property developers and local government financing vehicles.

    0
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    Gavekal Research

    The Energy Question

    Over the last 20 years, China has been the biggest buyer of most commodities. For investors, this meant that when China was tightening, easing up on commodity exposure made sense. That has not been the case in 2021, and in this piece, Louis seeks to explain why. He also raises the possibility that this cycle ends not with an inflationary blowout, but rather a whimper.

    7
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    Gavekal Dragonomics

    There Is No Capex Weakness

    China’s headline fixed-asset investment numbers missed expectations in Q1, but how trustworthy are they? In this report, Thomas cross-checks the headline FAI with bottom-up reporting from listed companies and concludes that the apparent weakness is a data issue, not reality. Positive conditions for corporate capex should persist through 2021.

    1
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    Gavekal Research

    Why Am I Hearing This Now?

    Two big storylines have recently emerged in Western media and Louis is not convinced this is down to editors stumbling on new information. In the case of the Wuhan “lab leak” theory and China’s suddenly challenged demography, he thinks that both the US and Chinese governments have an interest in spinning new narratives.

    21
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    Gavekal Dragonomics

    The Urbanization Surprise

    China’s 2020 census revealed that urbanization has been faster over the past decade than official statistics showed. That means the fundamentals for housing demand are stronger than most had realized. As Rosealea argues in this piece, the census should drive an upward reassessment of long-term trends in China’s urbanization and commodity demand.

    0
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    Gavekal Dragonomics

    The Xinjiang Pressure Test

    The US government’s criticism of China’s treatment of the Uyghur minority in Xinjiang, and China’s government’s tough response, is a very public test case for multinationals with China operations. They don’t want to take sides. But as Dan explains in this piece, foreign companies will, if forced to choose, move closer to the US position.

    0
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    Gavekal Dragonomics

    Striking A Balance On Steel Restrictions

    China’s steel output restrictions are softening following a sharp downward price correction. Rosealea writes that while environmental targets prevent officials from abandoning production curbs altogether, they will need to introduce demand-side constraints to match these supply-side measures and to avoid a repeat of the recent price dislocations.

    0
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    Gavekal Research

    When Money Becomes Spending Coupons

    Something is changing in the way our capitalist systems create money. For at least 200 years, Charles argues, money-creation began with a request for credit by an economic agent. In the new system, we are seeing the issuance of what amount to “spending coupons”. These coupons will never be retired, and he worries that over time their numbers will rise exponentially.

    6
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    Gavekal Research

    A Resounding “Nein” To European Inflation

    Inflation rates are popping higher all over the world. Even in the eurozone, consumer inflation is set to exceed the European Central Bank’s target in the coming months. Yet like previous spikes in European inflation over the last two decades, this one too is set to prove short-lived. In the eurozone’s largest economy, powerful disinflationary forces are at work.

    0
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    Gavekal Research

    The Slow-Motion Reverse Asian Crisis

    With hindsight, the key event impacting the global investment environment in 2020-21 may not have been the Covid pandemic but the renminbi’s strengthening. This is the first global crisis of the modern era when China has reacted by allowing its currency to appreciate. In this report, Louis outlines likely reasons for this change of policy in Beijing and the investment implications.

    6
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    Gavekal Research

    Red Alert In Southeast Asia

    As the global contest between China and the United States intensifies, Southeast Asia is on the front line. Investors should pay attention to this test case of superpower rivalry as the region is home to 650mn people, a US$3trn economy and critical global supply chains. Any substantial disruption would have a material knock-on effect for markets outside of the region.

    0
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    Gavekal Dragonomics

    After The Vaccine

    China’s Covid-19 vaccination program has significantly accelerated in May, bringing it on track to reach its target of administering at least one dose to 40% of the population by end-June. In this report, Ernan explains why this achievement does not mean the country will be opening its borders or removing domestic precautions this year.

    1
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    Gavekal Research

    Profits And The US Reshoring Plan

    In selling his US$2.3trn infrastructure investment plan, US President Joe Biden says it will create millions of secure manufacturing jobs: “There is simply no reason why the blades for wind turbines can’t be built in Pittsburgh instead of Beijing,” he recently opined. While not successful, the reshoring of US manufacturing jobs was a key justification for Donald Trump’s mercantilist trade policy. Now, as Biden seeks Congressional votes for his...

    5
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    Gavekal Dragonomics

    The Consumer Recovery Is Still On Track

    April’s shaky retail sales figures have raised questions about the strength of China’s consumer recovery. Ernan explains that the figures should be taken with a grain of salt: a closer inspection of April consumption indicators reveals that these worries are unfounded, and that consumer spending is continuing to recover at a healthy pace.

    0
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    Gavekal Research

    Trouble At The Coalface

    In April, Chinese president Xi Jinping pledged that China’s coal consumption will peak no later than 2025, and decline after that. This is good news for anyone worried about the world’s greenhouse gas emissions, but it will be a daunting challenge for Indonesia, where exports of coal to China are a major contributor to the local balance of payments.

    1
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    Gavekal Research

    Inflation Panic Is Another Buying Opportunity

    In recent days, Gavekal writers have outlined reasons to worry about the rise in US inflation. Anatole agrees with them that inflation will likely be higher in the next few years than in the previous decade, but he does not think that investors should worry about this. He says that the current ruction in markets is probably presenting investors with a “buy the dip” opportunity.

    19
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    Gavekal Research

    Q&A On The Inflation/Deflation Debate

    Last week Louis argued that each time inflation looked set to rear its head over the last 35 years, the global economy encountered a deflationary event. Yet today it’s not clear where a countervailing deflationary hit might come from. His report triggered some interesting back-and-forth with clients, and in this piece he replies to the key points raised.

    15
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    Gavekal Research

    The Future Of Chips Is Overcapacity

    Semiconductors are tough to come by these days, and the shortage will be deep and long-lasting. Yet chips are about to turn into more of a commoditized product, just as companies make huge investments in production capacity and governments spend big to achieve self-sufficiency on national security grounds. This will lead to permanent excess capacity.

    7
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    Gavekal Dragonomics

    The Population Turning Point Gets Closer

    China’s 2020 census has confirmed that the country’s population could peak around 2025, rather than the consensus forecast of around 2030. Ernan writes that inconsistencies in the data suggest the census figures are overstated; indeed, China’s population may already have peaked in the last year, a decade ahead of schedule.

    2
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