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

    Starvation Rations For Private-Sector Borrowers

    After a brief respite earlier in the year, China’s private sector is once again facing a credit squeeze. The PBOC’s announcement over the weekend of a change in the calculation methodology for the loan prime rate is likely to lower the cost of corporate loans, but it does not make it any easier for private firms to get finance.

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    Gavekal Dragonomics

    The Slowdown Continues

    After a end-of-quarter bounce in June, China’s economy resumed its gradual downward course in July, with industrial production, fixed investment, housing starts, retail sales and credit growth all slowing. The bright spots were exports, which registered a surprising pickup despite the trade war, and housing sales, which reversed three months of declines with a modest gain.

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    Gavekal Dragonomics

    The Size Of State Subsidies

    The US government alleges that “China provides massive, market-distorting subsidies,” particularly to state firms. But just how big are China’s subsidies to state-owned enterprises, and what kind of economic distortions do they create? This in-depth report quantifies three major types of direct and indirect subsidies, and explores their effects.

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    Gavekal Research

    STAR Is Born

    Trading on the world's newest stock market board got off to a predictably volatile start on Monday, when Shanghai's STAR market opened for business. But while that was entirely foreseeable, the reaction of regulators will be less predictable, and will send important signals significant for the long-term liberalization of China’s stock markets.

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    Gavekal Dragonomics

    Video: What Drives Chinese Equities

    Chinese equity markets are up around 26% for the year. Yet there has been no recovery in earnings growth, and the trade war and shaky domestic economic momentum continue to loom. The reason for the market optimism is expectations of supportive government policies, whether or not those expectations are valid.

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    Gavekal Dragonomics

    Liquidity Improves, But Not For All

    China’s policymakers are pushing banks to offer more financing to private-sector firms, trying to solve their liquidity squeeze. In this piece, Thomas inspects the data for the effects of that push, and finds that new credit is flowing mainly to the largest and smallest firms. The mass of medium-sized private firms are still in a tough spot.

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    Gavekal Dragonomics

    Navigating The Shocks To Earnings

    Chinese listed companies have lately suffered more than their fair share of shocks to earnings. In this piece, Thomas explains the financial and accounting problems that have squeezed profits in recent quarters. But he argues that, even with the trade war, 2019 is likely to be a normal profits downcycle rather than a disastrous one.

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    Gavekal Research

    The World's Biggest Bull Loses Steam

    China’s equity bull market has lost steam in the last 10 days after the Politburo adopted a less supportive tone following stronger than expected economic data in March. Even before the announcement, market ebullience had moderated. This is positive for China's stock market development, since it reduces the risk of an over-muscular regulatory reaction.

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    Gavekal Research

    Hong Kong Seminar — April 2019

    Louis Gave examined the reasons for equity markets' good performance amid a global trade slowdown; Thomas Gatley assessed the state of the Chinese economy and whether the current Chinese equity bull market still has legs; Udith Sikand reckoned it is time to be positive on emerging markets, especially EM Asia.

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    Gavekal Dragonomics

    A User's Guide To The Chinese Stock Market

    China’s onshore equity markets are now large and accessible enough that they can no longer be ignored by foreign investors—but idiosyncratic enough that they are hard to understand. This in-depth DeepChina report explains the fundamentals: What is there to invest in? Who owns the market? How can foreigners invest? How is the market regulated?

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    Gavekal Dragonomics

    Believe In The Chinese Bull Market

    After turning in the world’s worst performance in 2018, Chinese A-shares have bounced back with a vengeance in 2019. The three factors driving sentiment—liquidity conditions, the US-China trade war and Beijing’s policy stance—have all improved markedly. Thomas thinks the bull market has room to run, but exuberance creates its own set of risks.

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    Gavekal Dragonomics

    It’s Not 2015 All Over Again

    The profits of China’s industrial sector are turning down—but as Thomas argues in this piece, a repeat of the traumatic downturn of 2014-15 is not in the cards for 2019. Heavy industry will hold up better this time around, but consumer-facing sectors will do worse. This downcycle will be more broad-based, but less severe, than the last one.

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    Gavekal Dragonomics

    The Next Liquidity Squeeze On Private Firms

    China’s private firms suffered a big liquidity squeeze in 2018 as regulators cracked down on shadow financing. But in 2019 they must also contend with the threat of another liquidity squeeze: state-owned enterprises hoarding cash and delaying payments. Unless officials force them to stop, SOEs could squeeze another RMB1trn from private firms.

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    Gavekal Research

    What To Watch In Chinese A-Shares

    Chinese A-shares were the world’s worst-performing major equity market in 2018. For the market to rally in 2019, three factors will need to show signs of clarity and improvement: China’s macro policy direction, liquidity squeezes in the bond and equity markets, and the trade war with the US.

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    Gavekal Research

    Trade, Earnings And The Chinese Equity Market

    Yesterday’s plunge in US equities was partly attributed to fears that the trade war with China is far from settled. A similar mood is taking hold in China: news of the trade truce spurred a rally in Chinese equities on Monday, but gains softened on Tuesday. However, other factors are also weighing on investors in the Shanghai and Shenzhen markets.

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    Gavekal Dragonomics

    Solving The Private Sector's Liquidity Crisis

    China’s leaders are now falling over themselves to show love for the private sector. This political rhetoric has a practical purpose: easing the financial stress on private firms that is freezing up the corporate bond market and driving down stock prices. In this piece, Thomas examines the tools for solving the private sector’s liquidity crisis.

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    Gavekal Dragonomics

    Pledged Shares Put Private Firms In Peril

    China’s bear market has created a crisis for hundreds of listed companies whose shareholders had pledged shares as collateral for bank loans, and now face the threat of margin calls. In this piece, Thomas explains the share-pledging crisis and how it is reshuffling corporate ownership, as state entities and others move to rescue distressed firms.

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    Gavekal Dragonomics

    More Loans For The Private Sector

    China’s central bank is trying a new strategy to help private companies get access to credit. Rather than just push small-business lending, it is encouraging lending to all private firms, including larger ones. In this piece, Thomas explains why the old strategy wasn’t working, and why the new one is more likely to help the private sector.

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    Gavekal Research

    A Better Class Of Bear Market

    Although China’s A-shares are the world’s worst performing major market this year, this bear market is turning out to be a very different animal from that of 2015. Authorities are taking a very different strategy: rather than trying to prop up prices, regulators have focused on making technical changes to improve the way the market functions.

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    Gavekal Dragonomics

    The China Inc. Annual Report 2018

    In this chartbook, Thomas outlines the key trends in the fundamentals of China’s corporate sector. Growth in sales and profits has stayed stronger for longer, but is driven mainly by high materials prices. A rebound in capex is starting to fade. Deleveraging continues but more slowly, and may not last much longer as profits cool and debt rises.

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