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

    Asia’s Asset Quality Problem

    Economies with low vaccination rates across emerging Asia are tightening their restrictions on activity once again. So far, the economic and financial impact of the latest cycle of restrictions has been cushioned by exports and government support, but domestic demand remains depressed, private sector balance sheets have sustained damage and bank asset quality is deteriorating.

    0
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    Gavekal Research

    The Taper Is Coming

    In less than two weeks, Jay Powell will get up to make his speech at the annual Jackson Hole gathering of central bankers. Investors should position for a clear signal that in the coming months the US will begin to taper. It is possible, even likely, that the ever-cautious Federal Reserve chief may decide to delay a few weeks, perhaps until the conclusion of the Fed’s next policy meeting on September 22. But his signal is only a matter of time....

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    Gavekal Research

    Saigon, Mosul Or Suez?

    The images of US diplomats scrambling onto jets at Kabul airport, of Afghan refugees fleeing to Iran, Pakistan and Tajikistan, and of the Taliban entering Kabul with barely a shot fired are disturbing viewing. For investors, the question is which is the closest historical parallel. The flying helicopters and evacuated embassies recall Saigon in 1975. The speed of the humiliation evokes the 1956 Suez Crisis. And the images of the Taliban parading...

    7
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    Gavekal Research

    Where There Is A Risk Of A Wage-Price Spiral

    After the United Kingdom released data on Thursday showing GDP grew 4.8% quarter-on-quarter in the second quarter, markets are now pricing in a near-100% chance of a rate hike by mid-June next year. In the event, 2Q21 GDP growth was a shade below the Bank of England’s forecasts. And unlike the US, the UK’s output remains below its prepandemic baseline—by 4.4%. Nevertheless, because of a contraction in the UK’s pool of potential labor following...

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    Gavekal Research

    The Coming Decline In Earnings Growth

    After 453 of the S&P 500’s constituent companies have reported for the second quarter, aggregate earnings are up 99% year-on-year. Much of this jump is attributable to base effects; the second quarter of 2020 was when lockdowns hit hardest. But not all; even stripping out base effects, earnings growth has been strong. This growth is destined to fade over the second half, as the impact of economic reopening and government stimulus abates, and...

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    Gavekal Research

    The Consequence Of The IPCC Report

    The quote I over-use most is probably Charlie Munger’s “show me the incentives and I will tell you the outcome.” With this in mind, it is no surprise that the IPCC report makes for a harrowing read. Whether you agree with its conclusions is neither here nor there. The key question is this: what will policymakers do, or want to be seen to do, in response?

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    Gavekal Research

    The Gavekal V-Indicator And Tactical Asset Allocation

    The Gavekal velocity indicator has lately begun to send some potentially alarming signals. If in the next four weeks the daily indicator does not swing back to positive, then the three-month moving average will turn negative, raising a red flag. To explain why, it is first necessary to remind readers what our V-indicator is, and why it can be useful.

    2
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    Gavekal Research

    Building A High-Pressure Economy

    With the Biden administration’s US$550bn infrastructure bill all but clearing the Senate on Sunday, more stimulus is set to hit the US economy. Assuming the House of Representatives approves the plan, hard-hatted government contractors will soon be upgrading transport, broadband, water, and power facilities. The effect of this largely debt-funded spending will be to fuel growth in a US economy that already packs heat and faces a tightening labor...

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    Gavekal Research

    The Yen As An Antifragile Asset

    Over the last 12 months, the world’s best-performing major currency has been the renminbi, returning 10.6% against the US dollar. The second best has been the British pound, up 6%. The worst has been the yen, which is down -4%. Over the last 24 months, the best-performing two currencies were again the pound and the renminbi, which both gained 15.1%. The worst, again, was the yen, down -3.4%.

    2
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    Gavekal Research

    The Sobering Signal In Lumber

    Back in May, an internet meme suggested that if you wanted to impress your date by taking them somewhere really expensive, you should go to a lumber yard. No longer, as the price of US two-by-four has since cratered by two-thirds. KX examines what commodity-price moves such as this can tell us about the broader economy.

    2
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    Gavekal Research

    The European Rotation

    As Europe returns towards something approaching normality, the eurozone is undergoing a rotation in economic leadership from goods to services. This rotation will go on through the second half of 2020.

    0
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    Gavekal Research

    Is The Reflationary Trade Back On?

    Forget the recent easing signals sent by the Chinese Politburo (and consequent drop in Chinese bond yields). Forget fears about the “Delta variant” giving Western central banks cover to keep extremely loose monetary policies even as inflation rises. Forget also the upcoming US stimulus bill, or the unleashing of European fiscal expansion. A positive signal that no one is yet talking about is the deflationary signal that could have materialized,...

    1
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    Gavekal Research

    Risks To The Rally

    US equities have ground higher on strong demand, easy monetary policy, and unattractive bond yields. As long as this situation remains, investors should remain moderately overweight US equities. But they should also carefully monitor three key macro risks that could upend this fairly benign investing environment.

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    Gavekal Research

    Breaking Down European Inflation

    Two weeks ago, after US consumer price data for June showed inflation had climbed to a 13-year high of 5.4%, my colleague Tan Kai Xian examined the three main drivers of this year’s rise in US inflation: base effects, supply-side constraints and demand-pull factors. He concluded that base effects have started to wear off and supply-side constraints will soon begin to ease. However, demand-pull factors are set to strengthen over the coming...

    0
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    Gavekal Research

    When Will The Regulatory Rout End?

    Investors in China’s offshore-listed stocks have suffered multiple regulatory shocks. But with both onshore and Hong Kong equities now suffering, the crackdown is hitting domestic investors. Thomas explains why this will likely change the calculus for China’s policymakers, and why regulators are now likely to adopt a more constructive tone.

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    Gavekal Research

    The Evergrande Drama Plays Out

    Investor confidence in Evergrande Group, China’s second-largest property developer, has been pummeled in recent weeks. While Evergrande has managed to put out the latest round of fires, and a collapse is unlikely, Rosealea argues in this piece that market volatility for developers will probably continue as financial regulators keep on squeezing.

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    Gavekal Research

    Strange Times And The Return Of TINA

    Fresh Covid-19 outbreaks, stunning Chinese regulatory actions and worries over global growth are causing US real bond yields to plumb new depths. So what is the humble investor to do? After all, historically tight US credit spreads means corporate credit is unattractive, while equities keep making new highs, pushing the S&P 500 index up 18% year-to-date. The answer may not be that complicated, as current growth data and market pricing...

    0
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    Gavekal Research

    A Glass Less Full

    The eurozone’s economy has continued to pick up in July, with the flash composite PMI released on Friday beating expectations to hit a 21-year high. The manufacturing component continued to fire strongly, and notably the services index topped 60 for the first time since May 2006 as governments relaxed Covid restrictions and the summer tourist season got under way. However, after nine months in which eurozone data has consistently come in ahead...

    0
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    Gavekal Research

    Low For Even Longer

    On Thursday, the European Central Bank’s decisionmakers sat down for their first monetary policy meeting since they ditched their longstanding inflation target of “below, but close to 2%” in favor of a new symmetrical target centered on 2%. That decision formalized the ECB’s shift away from its Bundesbank-style focus on price stability and enshrined its role as the guardian of eurozone financial stability.

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    Gavekal Research

    The Fiscal Effect Of Zero Covid

    As a resource-rich economy, Malaysia has been buoyed by strong commodity and energy prices, yet the effect of the pandemic has been to create an unstable political situation. The governing coalition fell apart on July 8 and a new one has not been formed. Ordinarily, the way out of such a parliamentary impasse would be for an election to be held, yet with the country in a fresh lockdown due to surging Covid-19 cases, that will be difficult.

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