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E.g., 22-09-2018
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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,...

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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.

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    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.

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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...

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    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.

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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...

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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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    Gavekal Research

    The Fire Testing Of Asian Junk

    The strong US dollar, rising oil prices and a gathering trade war have sent capital fleeing from emerging markets. Asian high-yield debt has taken a hit with the benchmark (JP Morgan) index down -3% this year, sparking worries of a self-feeding cycle that ends with a debt crisis. We have taken a fairly constructive view on emerging economies due to their generally non-threatening macro-fundamentals. Hence, with EM asset prices stabilizing it is...

    2
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    Gavekal Research

    The Bank Of Japan's Choices

    Global bond markets have been jolted this week by an unusual source: the Bank of Japan. Reports that the BoJ is considering making unspecified tweaks to its policy stance triggered a 5bp spike in the 10-year Japanese government bond yield on Monday, and were blamed for an 8bp rise in the 10-year US treasury yield. BoJ governor Haruhiko Kuroda promptly denied the stories, insisting he knew “absolutely nothing” about the matter. And the central...

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    Gavekal Research

    An Indian Quagmire

    India has won kudos for adopting a modern bankruptcy law that makes it easier for big lenders to clean house on a bad debt problem that has festered since the early 2000s. The problem is that an approach which would garner broad support on Wall Street and then be executed through fairly efficient courts in New York and Delaware, has in India run into the sand of murky politics and bureaucratic sloth.

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    Gavekal Research

    Video: Understanding India’s Bad Loan Problem

    India has won kudos for adopting a modern bankruptcy law that makes it easier for big lenders to clean house on a bad debt problem that has festered since the early 2000s. In this video interview Udith discusses how the new bankruptcy law has worked in practice, and whether it will be enough to solve Indian banks' bad debt problem.

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    Gavekal Research

    Fair Weather Friend, Or Safe Port In A Storm?

    On Thursday morning in Asia, the Japanese yen was trading at ¥112.7 to the US dollar. At that level the yen is down -7.2% from its late March high, a fall which has erased all its first quarter gains and left the currency exactly flat year-to-date. At first glance this fall might seem surprising, given the degree of nervousness in global markets and the yen’s reputation as a safe haven currency, not to mention its undervaluation relative to...

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    Gavekal Research

    Hard Yards For Emerging Markets

    Emerging markets have been hit by the combined effect of a stronger US dollar, tighter international liquidity and rising trade tensions, causing their currencies to fall more in the last few months than in the 2013 “taper tantrum”. The big fear for EMs is that the end of easy money globally creates a giant margin call. As a firm, we have tended to be upbeat on their prospects in this cycle, and it may be that a huge buying opportunity has...

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    Gavekal Research

    The Moment Of Truth For Emerging Markets

    A strong US dollar, rising interest rates and higher oil prices are a toxic mix for emerging markets. A month ago it was only Turkey and Argentina that were looking really sick, punished by investors for their structural imbalances. But in recent weeks nervousness has engulfed the currencies of Indonesia, South Africa, India and—most notably—Brazil. This leaves the emerging markets facing a pivotal moment. Until now, the assets of those emerging...

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    Gavekal Research

    In Sweeps The Monsoon

    The summer monsoon lashed across southwest India yesterday, just a few hours after the central bank announced its first interest-rate hike in more than four years. With oil prices stoking inflation and foreign portfolio flows pouring out of the country, the Reserve Bank of India followed the lead of other emerging markets battling the global US dollar squeeze. Yet the darkest storm clouds are now political, as Prime Minister Narendra Modi...

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    Gavekal Research

    Video: Malaysia's Old Man In A Hurry

    In elections earlier this month, Mahathir Mohamad stunnned Malaysia, defeating the party he led for 20 years to become the country’s new prime minister. In this short video interview, Udith examines Mahathir’s policy platform, and asks whether the resurgent 92-year-old can really rejuvenate Malaysia’s economy.

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    Gavekal Research

    A Decision Tree For Emerging Markets

    Over the last five weeks, something unusual has been going on in global financial markets: the US dollar has been strengthening, and at the same time the price of oil has been going up. If prolonged, such a simultaneous rise in two of the world’s most important prices will threaten to inflict a vicious double blow on emerging market economies and asset prices. To be clear: the bigger influence would be the US dollar. But the simultaneous...

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    Gavekal Research

    The Refuge In Emerging Markets

    The year started in such promising form for emerging markets. Unfortunately, the initial promise failed to outlive January. Since early February’s mini-panic, emerging market assets have taken a beating, hammered by the triple whammy of a stronger US dollar, higher US yields, and rising oil prices—a combination that’s typically adverse for global growth, and so deeply negative for emerging markets. The strain has shown up first among “weak links...

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    Gavekal Research

    Malaysia’s 92-Year-Old Populist

    It is surely the most remarkable political comeback of recent history. At the tender age of 92, former prime minister of Malaysia Mahathir Mohamad won a shock victory in Wednesday’s general election, ousting from power the coalition he himself headed for 22 of the 61 uninterrupted years it ruled the country—ever since independence in 1957.

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    Gavekal Research

    EMs And The Oil Syndrome

    Having fallen more than -10% from their late January peak, emerging markets are looking shaky. Higher yields, a stronger US dollar and rising oil prices have all contributed to a tough environment. In the face of big current account deficits, Turkey and Argentina look properly imperiled, with some saying that their troubles point to a bigger problem for emerging economies. I disagree. Not all headwinds are created equal, and what matters for EMs...

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