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E.g., 22-01-2019
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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...

    4
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    Gavekal Research

    India's Acceleration Phenomenon

    As China’s market grows more mature, multinationals and investors are increasingly looking to households in emerging economies elsewhere to deliver the next big growth surge in demand for consumer goods and services. Above all they are pinning their hopes on India. With a population of 1.3bn, most aged under 30, and a GDP forecast by the International Monetary Fund to expand by 7.4% in 2019, India is easily the world’s fastest-growing major...

    2
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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?

    2
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    Gavekal Research

    A Careless Loss Of Indian Central Bankers

    To lose one central bank governor may be regarded as a misfortune. To lose a second one, as India did yesterday, looks like carelessness bordering on recklessness. Urjit Patel’s resignation, after resisting months of pressure from the ruling BJP to ease credit conditions and hand over some of its cash reserves, is another black mark against the government.

    2
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    Gavekal Research

    India Macro Update: Post-Rout Uncertainty

    India is beset with economic problems that range from a deepening credit crunch, a worrying stand-off between the government and central bank and a capital spending cycle that has never really gotten going. Yet despite these challenges, the economy keeps chugging along and should hit 7.5% growth in the current fiscal year. In this quarterly macro update, Udith and Tom consider the outlook in light of political uncertainty ahead of next year’s...

    0
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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?

    3
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    Gavekal Research

    India's Soft Approach To Hard Money

    A key reason to hold Indian risk assets in recent years has been the presence of a strong government willing to incur short-term political pain in return for longer-term economic gain. Yet, with the Reserve Bank of India fighting the finance ministry over bank regulation policies that may crimp growth ahead of a national election, this premise looks shaky. The partially independent central bank has faced political attack before, but this is...

    2
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    Gavekal Research

    Beijing Seminar — October 2018

    At Gavekal’s seminar in Beijing last week, Louis-Vincent Gave, Udith Sikand and Chen Long presented their latest views on the turn in global markets, the prospects for emerging markets in the quarters ahead, and on China's policy priorities as it faces down the US in a prolonged rivalry.

    0
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    Gavekal Research

    JAM Today For Indian Fintech

    There is a Dickensian quality to Indian finance just now as banks struggle under bad debt piles and finance companies face a wholesale funding crunch after a recent high profile default. Yet if these are the worst of times for credit intermediaries in India, there is a clear silver lining as fintech firms capitalize on a national biometric database.

    0
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    Gavekal Research

    Reviewing The Yen As A Safe Haven

    Three months ago in July, I argued that international investors should consider holding Japanese equities without hedging their currency exposure. A month ago in September, I revisited that call, concluding that it still held. My essential argument was that investors had largely priced in the headwinds facing Japanese equities, which offered compelling valuations should trade tensions blow over and global risk appetite return. On the other hand...

    2
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    Gavekal Research

    The EM Value Question

    After a grim seven-month sell-off, it is natural to ask whether emerging markets now offer attractive value. Since its January peak, the MSCI emerging markets index has fallen -22%. The corollary has been a deep derating, which has left EM equities trading below their long term mean P/E ratios. However, a healthy dose of caution is warranted.

    5
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    Gavekal Research

    The Severity Of India’s Rout

    It has been a torrid month for Indian markets. Equities have tanked by -7%, the rupee has dropped to all-time lows, and a new crisis is emerging in the financial sector. Liquidity is tightening in the money markets, threatening the survival of several non-bank financial companies and raising the prospect of contagion risk that could spill over to the rest of the financial system and lead to a broader economic slowdown. The rout in emerging...

    0
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    Gavekal Research

    Heads I Win, Tails I Don’t Lose In Japan

    A glance at the headlines suggests the story in Japan is still “stasis as usual”. As expected, on Wednesday the Bank of Japan reaffirmed its intention to keep interest rates low indefinitely. And later on Thursday, Shinzo Abe is all but sure to fend off a leadership challenge from within his ruling Liberal Democratic Party, setting him on course to become the country’s longest-serving prime minister. In tune with this “no change” refrain,...

    0
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    Gavekal Research

    Why You Should Buy Indonesia

    There are reasons to think that a 2% rise in the broad emerging market index over the last two days may be more than just a relief rally. For those investors who are minded to seek out EM equities, one of the more interesting options is Indonesia, which has unfairly been treated by investors as a sort of Asian Turkey.

    0
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    Gavekal Research

    The Korean Advantage

    Yesterday was another bad day for weak-link emerging markets battling a rising US dollar. Still, my contention during this year’s EM sell-off has been that investors should sort the wheat from the chaff. With a current account surplus of 5% of GDP and forex reserves of US$400bn, exhibit-A is South Korea.

    0
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    Gavekal Research

    Disentangling The EM Mess

    It has been tough reconciling weak emerging market performance this year with their generally decent macro fundamentals. Charles pins the blame on a US dollar squeeze and will publish an update later today. By contrast, Anatole reckons that markets have made a mistake in assuming that EMs are especially vulnerable to a strong US dollar. I see merit in both positions, but do not buy the fact that there is a catch-all explanation for what is going...

    0
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    Gavekal Research

    India Macro Update: A Mixed Masala

    As public spending is cranked up ahead of an election that is expected to be held next spring, India should be able to sustain its current level of economic growth for a while yet. However, the rate of expansion has likely passed the high water mark for this cycle, argue Udith and Tom in this quarterly update.

    0
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    Gavekal Research

    How To Assess The Stresses On EMs

    Emerging market equities are officially in a bear market, with the MSCI EM index down -20% from its January peak. EM-related commodities are also hurting, notably copper which has fallen -18% since June. The central question now is whether one should steer clear of all EM assets, because the rout is general and likely to get worse; or if one should keep an eye out for buying opportunities here and there. With some trepidation, we advise the...

    4
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    Gavekal Research

    India’s Illusory Rally

    Which is the best-performing stock market in Asia so far this year? If you look at the headline equity indexes, the answer is India. On Thursday morning, the Bombay Stock Exchange’s Sensex 30 index hit yet another record high, up 11.6% year to date in local currency terms, and up 4% in US dollar terms. At first glance this outperformance might suggest that India, with its low dependence on foreign trade and manageable level of external debt, is...

    4
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