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E.g., 25-02-2018
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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.

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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.

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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.

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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.

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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.

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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.

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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...

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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.

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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.

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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...

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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.

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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.

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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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    Gavekal Research

    London Seminar — October 2017

    Anatole argued that the investment environment should remain upbeat given predictable monetary policy and a global cyclical upturn. Chen Long contended that China’s post-Party Congress slowdown should be gradual. Cedric made a bullish case for European equities, while Charles presented Gavekal’s latest artificial intelligence investment tools.

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    Gavekal Dragonomics

    The Good Kind Of Capital Outflow

    China’s government has been gradually restricting the ability of households and companies to move money out of the country, with one big exception: outbound portfolio investment is actually getting more support not less. As the Connect schemes with Hong Kong ease worries about capital flight, they have become the preferred channel for outflows.

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    Gavekal Dragonomics

    Macro Update: Prolonging The Peak

    In our latest quarterly chartbook, Chen Long reviews the mixed signals from China’s economy and markets. While the cycle has peaked, the government has still found ways to prolong industrial reflation. But economic growth and bond yields will head down from here, though gradually, as the tightening of financial regulation has been well managed.

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    Gavekal Dragonomics

    A Short History Of Financial Deregulation

    Financial deregulation has seen a cartel of national state-owned banks give way to a bewildering array of local banks, non-bank lenders, wealth management products and loans disguised as investments. Regulators are tightening their grip, yet so long as Beijing demands high-speed growth, it will have to tolerate some financial misbehavior.

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    Gavekal Dragonomics

    Three Sets Of Books

    China’s financial system has grown dizzyingly complex, but at its heart sit the banks, which provide most of the funds for shadow lending by non-banks. To assess the system’s risks, we need to understand the banks’ three credit books: their loans, their “investments” routed through non-banks, and their off-balance-sheet wealth management products.

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    Gavekal Dragonomics

    CEQ: The Financial Labyrinth

    Is China’s financial system going to collapse? The speed of credit growth, the proliferation of financial institutions and financial products, and the chaotic and fragmentary data all make it reasonable to fret that China is on the verge of catastrophe. This issue of the CEQ is our attempt to bring clarity to this mystifying landscape.

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    Gavekal Research

    After The Renminbi Rally

    The last renminbi bears are throwing in the towel: with Chinese corporates unwinding the dollar holdings they have accumulated over the last two years, the renminbi is up strongly. Although the PBOC is for now happy to step back and let appreciation happen, there are still limits to how much it will want the trade-weighted exchange rate to rise.

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