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E.g., 29-05-2020
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    Gavekal Research

    The Renminbi As Collateral Damage

    The rise in US-China tensions over the past week is taking a toll on China’s currency, which has weakened to CNY7.15 to the dollar from around CNY7.10, approaching its lows of last September. This has raised a worrying question: is China about to use currency depreciation as a weapon in its widening dispute with the US?

    0
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    Gavekal Research

    It’s Looking Hamiltonian

    It wasn’t quite the dawn of a new epoch, but the European Commission’s plan to boost its seven-year budget with €750bn of borrowing certainly ranks as a moment for the European Union. The plan needs unanimous backing from all member states and is far from a done deal. Yet it is likely to pass and in so doing it will change the nature of financial risk in Europe.

    0
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    Gavekal Research

    The Return Of TINA

    All bull markets start as unloved beasts, but the one that began in US equities on March 23 has been especially despised. The news in the intervening two months has been dreadful, and it is still not really clear who is doing the buying, and why. So in seeking to understand if a market that is up 33% from its bottom can go further, KX considers four possible drivers.

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    Gavekal Research

    Hong Kong And The Ethic Of Responsibility

    German sociologist Max Weber made the distinction between the ethic of conviction, based on the philosophy of Immanuel Kant, and the ethic of responsibility, based on consequentialist philosophy, a grandchild of Aristotelian logic. The distinction between the two may help investors to determine their response to developments in Hong Kong.

    10
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    Gavekal Research

    The Death Of Old Hong Kong

    On Monday morning, the streets around Gavekal’s offices in Hong Kong’s Wan Chai district teemed with harried commuters rather than baton-charging police and political protesters. Unfortunately, uncertainty about Hong Kong’s future as a free society will linger longer than the tear gas that had drenched the area a few hours earlier. There is now a fair chance that China’s imposition of a new national security law in Hong Kong will cause a chain...

    2
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    Gavekal Research

    Boris Will Pile Pelion On Ossa

    No country has matched Britain’s dismal combination of currency and equity losses so far this year. What makes matters worse for Britain than other developed economies is that Boris Johnson is refusing to extend the post-Brexit transition period beyond December, precisely the time when the Covid-19 recession might otherwise be expected to start lifting.

    14
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    Gavekal Research

    Saudi's Peso Problem

    Two weeks ago in early May, the Saudi Arabian Monetary Agency issued an unusual statement. Sama, it insisted, is committed to maintaining the Saudi riyal’s exchange rate peg at SAR3.75 to the US dollar, and has the resources to do so. Stress signals don’t come much clearer.

    0
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    Gavekal Research

    Beware The Charm Of Monopolistic Tech

    An equally-weighted index of monopolistic "tech" companies is up by a whopping 26% in the last year, whereas an active manager running a portfolio with 30 or 40 stocks would be down about -7% over the same period. The difference in performance may be the "cost" of holding a diversified portfolio with lower risk than a concentrated portfolio.

    3
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    Gavekal Research

    Europe’s Hamiltonian Moment

    If there was a rational explanation for Monday’s global risk-on rally, it would be the genuinely exciting news from Europe. It is possible—just possible—that the Franco-German proposal for a €500bn coronavirus Recovery Fund announced yesterday will turn out to be the most important historic consequence of the coronavirus.

    14
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    Gavekal Research

    A US Full-Court Press Against China

    The US-China relationship has deteriorated rapidly, and the main reason seems to be that Donald Trump has decided that a “tough on China” approach should be central to his reelection campaign. Acrimony between the two countries is likely to get much worse between now and November, and US actions are starting to spread from technology to finance.

    0
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    Gavekal Research

    Phase Two Beckons

    Europeans have spent big to freeze their economies as if held in suspended animation since mid-March. On the whole, this plan is working quite well but EU member states must now agree to a post-pandemic plan for demand stimulus if they are to avoid an all-too-predictable double-dip downturn. They will get a shot next week, when the blueprint for a “recovery fund” is unveiled.

    1
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    Gavekal Research

    The World Has Changed, Quick! Buy More Of The Same

    As countries around the world, and some US states, are starting to emerge from their enforced Covid-19 hibernation, investors have to choose between one of three potential outcomes. Either the virus re-emerges and causes new lockdowns, the post-Covid-19 world is not growth friendly, or pent-up demand and supportive policies leads to global growth ripping.

    2
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    Gavekal Research

    The Chinese Bond Rally Is Not Over Yet

    China’s bond market is selling off on rising optimism about the nation’s recovery from the Covid-19 lockdown. But Wei argues that this rise in bond yields looks like a false alarm: China’s economy is not about to begin a V-shaped recovery and its central bank is not yet finished with monetary easing. The bond bull market still has some way to run.

    0
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    Gavekal Research

    Brazil's Burning House

    As President Jair Bolsonaro fuels anti-lockdown protests, Brazil is having a rough Covid-19 crisis. Its public health response has been weak and investors are horrified at the economic costs of such bungling. Fortunately, Brazil’s federal structure does mean the country can handle the crisis in spite of weak central leadership.

    0
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    Gavekal Research

    Breasting The Trough

    The apparent divergence between the stock market and economic reality continues to widen. Equity investors are focusing on the expected effects of the Federal Reserve’s massive liquidity injections once states emerge from lockdown. The risk to this rosy view is that the easing of restrictions could cause an infection increase so severe that new lockdowns are imposed.

    0
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    Gavekal Research

    Sovereignty And That German Court Ruling

    Tuesday’s ruling by Germany’s constitutional court on the legitimacy of asset purchases by the European Central Bank hits at the heart of a political project whose ultimate aim has been usurp the sovereignty of historical states in favor of a new super state. I am no lawyer but I have studied political science and the issue now in play is of a fundamental nature.

    1
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    Gavekal Research

    The Threat From Turkey

    Turkey increasingly looks like a basket case that may spark a broader move out of emerging markets. Despite its efforts to squeeze short-sellers by stopping banks from swapping currency with foreign counterparties, the lira is hitting new lows against the US dollar. Efforts to sustain the lira with foreign currency borrowed from Turkey's dollarized banking system can't go on indefinitely.

    0
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    Gavekal Research

    ‘No Limits’ Now ‘No, Limits’

    Markets have largely taken in their stride Tuesday’s decision by the German Constitutional Court that the European Central Bank exceeded its mandate by launching quantitative easing in 2015. The euro's move against the US dollar and the 10bp uptick in Italian 10-year yields were modest by the standards of recent volatility. This may be overly complacent.

    0
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    Gavekal Research

    US Labor And The New Economy

    US states are moving to end stay-at-home orders and slowly resume activity. With some 30mn workers having been laid off, they will do so in an economy that has been profoundly changed by Covid-19. At a macro level, a fairly swift recovery is likely. Yet it will be a painful exercise as structural changes wrought by the pandemic upend the US labor market.

    0
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    Gavekal Research

    Down -16% And Still 30% Overvalued

    It seems the world has entered a new era, in which the principal function of central banks is to try to prevent markets from going down. So, after the gold standard and the dollar standard, we now appear to have the S&P 500 standard, in which a desperate central bank tries to manage the financial markets.

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