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E.g., 26-04-2018
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    Gavekal Research

    A First Step Towards Easing

    The Chinese central bank is no longer in full policy tightening mode. That’s good news for Chinese bank shares. Shortly after government statisticians released economic data for the first quarter on Tuesday, the People’s Bank Of China announced a 100bp reduction in bank reserve requirement ratios. For big banks, this reduces the proportion of their deposits they are required to lodge as reserves at the central bank from 17% to 16%. In gross...

    0
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    Gavekal Dragonomics

    The Changing Language On Leverage

    China’s policymakers have for the first time called for reducing the total debt-to-GDP ratio. This shift has raised worries that monetary policy could get tougher, on top of the tightening of financial regulation that is already underway. In this piece, Long explains that no shift in policy is imminent; if anything, easing is getting more likely.

    0
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    Gavekal Dragonomics

    Macro Update: Centralization Amid Conflict

    In our latest chartbook, Chen Long outlines a relatively positive cyclical economic picture for China, with steady macro policy, strengthening financial regulation, and further political centralization. The risks to this outlook are tightening property policies, a local government funding squeeze and the looming threat of a US-China trade conflict.

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    Gavekal Dragonomics

    Trade Wars: A China Expert Roundtable

    Last week’s sharp equity market sell-off followed the US effectively threatening China with a trade war. In this report, Arthur, Long and Andrew address China’s capacity to strike back and explore what it means for the relationship between the world’s two biggest economies.

    1
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    Gavekal Research

    The New Economic Team

    China’s top economic team for the next five years was released this morning, and the theme seems to be “steady as she goes”, with a vote of confidence for experts in their fields. Chen Long has looked at the list, which includes a new PBOC governor, and offers his take on what this means for financial policy in the years ahead.

    2
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    Gavekal Dragonomics

    Zhou Xiaochuan’s Legacy

    Zhou Xiaochuan is expected to retire this month after 15 years heading the People’s Bank of China, during which he oversaw both major reforms and an explosion of debt. Chen Long argues that Zhou’s successor faces three main challenges: completing interest and exchange rate reform, managing financial risk, and adapting to a bigger global role.

    0
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    Gavekal Research

    Video: Surviving China's Regulatory Storm

    Scarcely a week goes by without word of some new regulatory crackdown on China’s financial services industry. After years of financial liberalization, runaway growth in the shadow banking market, and rampant regulatory arbitrage, the authorities are now moving to unify a fragmented regulatory regime and contain the risks posed by excessive leverage and complexity. In this video interview, Chen Long makes sense of the about-face and explains what...

    0
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    Gavekal Dragonomics

    A Reversal In The Renminbi?

    The renminbi’s 0.8% fall against the US dollar on Thursday was an unusual move for a managed exchange rate. But what was even more unusual was the preceding run-up: before that drop, the renminbi was up 2.8% YTD in trade-weighted terms. This overshooting the official goal of trade-weighted stability was what set the stage for the correction.

    0
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    Gavekal Dragonomics

    The Secret Ingredient For Financial Stability

    China’s regulators have done a remarkable job of de-leveraging the financial sector without hurting economic growth or disrupting markets. But was this smooth trajectory due to luck or skill, and can it continue? In this piece, Chen Long explains how the central bank used its monetary policy tools to defuse the risks from tighter regulation.

    0
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    Gavekal Research

    Overbought But Still Undervalued

    Chinese stock markets are on a tear, with large cap A-shares up 8.9% and Hong Kong-listed H-shares up a thumping 16.3% year-to-date. After such a rapid rise, the markets are vulnerable to a near-term pull-back. But Chen Long explains that economic fundamentals, valuations and flows all suggest the bull market still has further to run.

    0
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    Gavekal Dragonomics

    The Regulatory Storm Continues

    China’s financial-regulatory storm is far from over: in recent weeks, the banking regulator has issued a half-dozen new or proposed rules, and launched another campaign to uncover financial malpractice. While this means credit growth will slow further, Chen Long argues regulators can still avoid shocks to the economy and market sentiment.

    0
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    Gavekal Dragonomics

    China In 2018: Continuity And Centralization

    China is set for another year of decent growth in 2018. The latest set of policy conclaves have re-affirmed the broad policy direction: more emphasis on the quality of growth than its speed, and continued efforts in the "three key battles" against financial risk, poverty and pollution. The main financial goals are to cut corporate debt/equity ratios rather than to reduce overall national leverage.

    0
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    Gavekal Dragonomics

    Macro Update: A Safe Landing In 2018

    In our quarterly chartbook, Chen Long reviews the economy’s direction since the Party Congress and explains the outlook for 2018. Financial regulation is tightening, and the tradeoff between growth and the environment is shifting. But with construction holding up and inflation surprisingly strong, the base case is still for a moderate slowdown.

    0
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    Gavekal Research

    Not All Bank Recaps Are Created Equal

    A month ago, India outlined a US$32bn plan to fix its publicly-controlled banks’ bad debt problem, sparking a more than 30% rally in their share prices. The plan remains under wraps, but the “round tripping” approach will see deposits lent to the government as recapitalization bonds and then injected back into banks as fresh capital. The question is whether India’s effort is credible enough for banks to both write off debt and have enough...

    0
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    Gavekal Research

    Don’t Panic Over Chinese Equities

    The A-share equity market suffered its biggest one-day sell-off this year yesterday. But Chen Long argues that conditions in fact still remain benign for Chinese equity investors. The earnings outlook is favorable, the market is cheap by global standards, and international investors are beginning to trim their longstanding underweight.

    0
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    Gavekal Research

    New York Seminar — November 2017

    At Gavekal's November seminar in New York Louis Gave, Arthur Kroeber, Cedric Gemehl and Anatole Kaletsky presented their macro outlooks and investment recommendations.

    0
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    Gavekal Dragonomics

    Towards A Single Asset Management Regime

    For the first time, China is to bring its highly heterogeneous RMB100trn asset management industry under a single regulatory umbrella. New rules published last week promise to increase transparency, curtail leverage and reduce complexity and hidden risks, especially in the booming business in so-called “wealth management products”. However, writes Chen Long, the draft regulations contain a number of omissions, ambiguities and loopholes which, if...

    0
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    Gavekal Dragonomics

    Decent Growth Risky For Bond Yields

    China’s economic data for October confirms that the moderate slowdown in growth is continuing as the housing cycle fades and government spending weakens, even as corporate earnings benefit from higher-than-expected inflation. Chen Long now sees an increasing risk for domestic bond yields in this combination, though it is bullish for equities.

    0
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    Gavekal Research

    Reading China’s Financial Opening

    Over the next five years Beijing says it will progressively relax—and eventually scrap—the restrictions it currently imposes on foreign ownership of Chinese financial institutions. In practical terms, this is unlikely to prove a great game-changer for the industry, but it is still a significant move with positive implications for Chinese equities.

    3
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    Gavekal Dragonomics

    The View Into 2018

    The Chinese economy has experienced a nice cyclical recovery since 2016, but now most forecasters are expecting a loss of momentum in 2018. So how is this slowdown likely to play out? In this piece Chen Long lays out his case for a gradual cooling in both real and nominal growth that will not spook global markets.

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