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E.g., 26-08-2019
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    Gavekal Research

    No Time To Be Chicago Trained

    Technocrats globally are under the cosh from populist politicians who have tired of doing the sensible thing. In the developed world, checks and balances have insulated most big agencies, but the story is different in developing economies. The worry is that they are lurching off onto a development track that ends with fiscal blowouts and currency debasement.

    0
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    Gavekal Research

    Emerging Markets After The Trade War

    Emerging markets did nicely out of the rumor, less well from the fact. As hopes grew through June for some form of trade détente between the US and China, EM assets staged a broad rally. Similarly, EM currencies pushed broadly higher, on the back of a wider US dollar softness. Over the last week, however, EM equities and currencies have pulled back.

    0
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    Gavekal Research

    Japan's Fiscal Dilemmas

    As investors worry about global economic weakening, attention is turning to the cavalry, which in recent years has been central banks. In Japan poor survey and sentiment readings have sparked surprisingly dovish public comments by the BoJ governor. In fact, investors may be better off listening to the prime minister, as the real game may now be fiscal.

    0
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    Gavekal Research

    EMs Hit The Trade Wall

    It is not clear if the latest trade actions launched by the US against Mexico and India form part of coherent plan. Such moves do signal that the US-centered multilateral trading system is hanging by a thread. This upending of the post-WWII order is especially bad news for trade-dependent emerging economies.

    0
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    Gavekal Research

    Gauging The EM Collateral Damage

    After Donald Trump’s weekend tweets, trade war is once again the center of attention for investors. The perceived probability of an escalation has risen sharply, and risk assets have sold off. Asian emerging markets have not escaped the rout, but it would be a mistake for investors to treat all Asian emerging markets equally.

    3
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    Gavekal Research

    Look Through The Trade Data

    After rallying 10% in 1Q19, emerging market equities have hit an air pocket as investors worry about global growth. Given the link between EM profitability and global trade, data showing that activity shrank in both volume and value terms in the three months to February has raised concerns. It hasn’t helped that the Washington side of the US-China trade talks has amped up “no deal” rhetoric in what is slated to be the final run-in of the...

    0
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    Gavekal Research

    Modi And The Markets

    Indian markets are pricing in a victory by the ruling BJP in this year’s general election, a six-week process of mindboggling complexity that started on April 11. But while this will be the most likely single outcome when results are announced on May 23, nothing is a foregone conclusion under India’s unpredictable first-past-the-post system.

    0
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    Gavekal Research

    The Populist Challenge In Indonesia

    These are populist times. After the elections of Duterte in the Philippines, Trump in the US, Bolsonaro in Brazil, and the return to power last year of Mahathir Mohamad in Malaysia, investors would do well to take note of the last minute opinion poll gains made by another rabble-rousing populist seeking election to high office in Indonesia.

    0
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    Gavekal Research

    A Tactical Opportunity In Turkey

    Turkey has long been a market to steer well clear of, with investment opportunities poisoned by toxic politics and an ever-depreciating local currency. However, with the US Federal Reserve adopting a more dovish stance and following the weekend’s municipal elections, Turkish lira assets may now offer an attractive tactical opportunity.

    1
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    Gavekal Research

    Among EMs, Favor North Asia

    With their high beta to global growth, emerging markets seldom outperform when investors begin to get nervous about the health of the global economy. So it is no surprise that the risk-off move of the last week has seen the Brazilian real and Argentinian peso each sold off by more than -5% against the US dollar, while the Turkish lira has been propped up only by a regulatory squeeze on liquidity. But the jitters have not affected all emerging...

    0
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    Gavekal Research

    The Central Banker Who Cried Wolf

    In January, the BoJ governor promised more monetary easing if that was what it took for inflation to reach 2%. Investors increasingly doubt the fortitude of Japan’s financial sector as it endures the pain inflicted by the world’s easiest central bank. If that suspicion grows, the variable of adjustment may be a rising yen, which would be a big headache for the BoJ.

    0
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    Gavekal Research

    Towards A New Triple Merit Scenario

    Emerging market equities have benefited handsomely from the global risk-on move so far this year. With the prospect of a US-China tariff truce and the likelihood that China’s growth rate will stabilize in the coming months, EM may be on the cusp of a new “triple merit scenario” that could extend the equity rally through the rest of 2019.

    0
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    Gavekal Research

    Time To Underweight Thailand

    In the two weeks since the announcement that a movie star princess would stand for prime minister in Thailand's March election—though her candidacy was swiftly shot down by the palace—investors have largely shrugged off fears of renewed upheavals. However, this is not just Thai politics as usual. It reopens old wounds and throws current alignments into doubt.

    0
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    Gavekal Research

    EM Balance Sheet Vs Income Statement

    Emerging market investors face a dilemma in 2019. Softer relative growth prospects in the US as the initial effects of 2018’s tax cuts wear off, coupled with the easing of the US dollar liquidity squeeze implied by a more dovish Federal Reserve and softer oil price, favor emerging market assets. The question is: how best to implement this view?

    0
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    Gavekal Research

    The Politics Of Indian Largesse

    India aspires to be a US$10trn economy by 2030. It’s fine to dream, but first the ruling BJP must win a general election. After recent defeats in three state elections and a resurgent opposition, it faces a tough race. The interim budget on Friday responded to the Congress Party’s leftist populism while presenting a fiscal plan designed not to spook markets.

    2
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    Gavekal Research

    Favor Local Bonds Over EM Equities

    After a dismal year for emerging market assets in 2018, emerging markets have started 2019 on a positive note, with equities rising 6.5% and local currency bonds up 3% year-to-date. On Friday, Louis looked at shifts in the US dollar, long term US interest rates, credit spreads and the oil price, and concluded they favor emerging market assets through the rest of 2019. Broadly I agree, but I would take a slightly more nuanced stance. The shifts...

    0
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    Gavekal Research

    Mexico 1, Brazil 0

    When Brazil met Mexico in last year’s football world cup, the Brazilian team walked away the victors by two goals to nil. In financial markets too, Brazil has lately been beating Mexico. In recent weeks each country has installed as its president a fiery populist—although they hail from different ends of the ideological spectrum. In Brazil, Jair Bolsonaro is an unabashed right-winger, while his Mexican counterpart Andrés Manuel López Obrador, or...

    8
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    Gavekal Research

    Beyond The US Dollar-Yen Flash Crash

    The consensus is that last Wednesday’s “flash crash” in the US dollar-yen exchange rate was sparked by a flight to safety in extremely thin trading while Japanese markets were closed for a holiday. Fair enough—but it does not explain why the yen has still strengthened 5% against the US dollar since early October.

    0
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    Gavekal Research

    A New Risk-Reward Equation In EMs

    US markets have come back to earth with a bump on a reassessment of risk and growth prospects. As a result, investors are betting on a less hawkish Federal Reserve and a weaker US dollar, both of which are a boon to hard-pressed emerging markets. The question is: do investors gain more from a more favorable US dollar liquidity environment than they lose from a growth picture clouded by a slowing China and unresolved trade tensions?

    4
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    Gavekal Research

    EMs Need More Than A Bear Hug

    Having fallen -25% since late January, emerging market equities have been this year’s train crash of an investment. The good news is that EM equity valuations are at multi-year lows in both absolute and relative terms, begging the question: what could catalyze a rebound in oversold EM assets?

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