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E.g., 25-10-2021
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    Gavekal Research

    Q&A: China’s Investibility

    In the last few weeks, as China Evergrande’s financial troubles have deepened, Louis and Gavekal’s China team have fielded a spate of questions from clients about China’s investibility. In this paper, Louis offers a distillation of these conversations, presented in a question-and-answer format.

    13
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    Gavekal Research

    Investing In Today’s Inflationary Environment

    Investing in a topsy-turvy macro environment can feel like a crapshoot. One way to seek order among chaos is to draw lessons from economic history. Louis examines the underlying causes of financial crises since the late 1990s and applies the lessons to consider the way in which the global economy and markets emerge from the pandemic.

    2
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    Gavekal Research

    Covid, Markets And What Happens Next

    Over the last 18 months, Covid developments have been a key driver of financial market performance. Louis contends that this period can be split into four distinct phases. In this piece, he asks whether we are now entering a fifth phase. To do this he weighs up both encouraging and concerning developments within the pandemic and economic policy choices that flow from them.

    6
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    Gavekal Research

    Who Is Copying Who?

    When China joined the WTO in 2001, western governments hoped that closer economic integration would pull China towards a more democratic system of governance. Yet two decades on, that hasn’t happened. In fact, argues Louis, recent years have seen governments in the West increasingly infringe on individual liberties for the benefit of the common good.

    17
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    Gavekal Research

    Behind China’s Corporate Clampdown

    Private education is the latest sector to draw fire from the Chinese authorities. Their action has precipitated an abrupt slide in Hong Kong’s equity indexes as international investors bale out, alarmed at what they see as official caprice. It has also triggered a spate of questions about what lies behind the crackdown, and what the action means for the future of investing in China.

    9
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    Gavekal Research

    The Inflation Quandary

    Markets seem to be comforting themselves that incipient inflation is, as the Federal Reserve has argued, a transitory phenomenon. Louis is skeptical that this is the case. He sees no evidence of any deflationary shocks that could squeeze price pressure, while at the same time, Western policymakers are doing all in their power to pump up demand.

    1
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    Gavekal Research

    The Energy Question

    Over the last 20 years, China has been the biggest buyer of most commodities. For investors, this meant that when China was tightening, easing up on commodity exposure made sense. That has not been the case in 2021, and in this piece, Louis seeks to explain why. He also raises the possibility that this cycle ends not with an inflationary blowout, but rather a whimper.

    7
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    Gavekal Research

    Why Am I Hearing This Now?

    Two big storylines have recently emerged in Western media and Louis is not convinced this is down to editors stumbling on new information. In the case of the Wuhan “lab leak” theory and China’s suddenly challenged demography, he thinks that both the US and Chinese governments have an interest in spinning new narratives.

    21
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    Gavekal Research

    The Slow-Motion Reverse Asian Crisis

    With hindsight, the key event impacting the global investment environment in 2020-21 may not have been the Covid pandemic but the renminbi’s strengthening. This is the first global crisis of the modern era when China has reacted by allowing its currency to appreciate. In this report, Louis outlines likely reasons for this change of policy in Beijing and the investment implications.

    6
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    Gavekal Research

    Q&A On The Inflation/Deflation Debate

    Last week Louis argued that each time inflation looked set to rear its head over the last 35 years, the global economy encountered a deflationary event. Yet today it’s not clear where a countervailing deflationary hit might come from. His report triggered some interesting back-and-forth with clients, and in this piece he replies to the key points raised.

    15
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    Gavekal Research

    The US Doesn’t Need A Wealth Tax

    Louis had feared that the US would follow France in imposing a wealth tax on its citizens. But it turns out it doesn't have to, as the US is now embracing a combination of economic policies that seem set to destroy the capital base of rich Americans. This will have implications for asset holders and the value of the US dollar.

    3
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    Gavekal Research

    Abundance And Shortages

    Over decades, investors have gotten used to living in a world of plenty, in which capital, labor, commodities and knowledge have all been in abundant supply. Today, however, while the world remains awash with cheap capital, there are signs that the supplies of labor, commodities and—most ominously of all—knowledge may be facing tightening constraints. In this paper, Louis asks whether, after years of abundance, the world may be facing a...

    2
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    Gavekal Research

    Financial Manias: The Crypto Craze

    After scrutinizing the electric car craze last week, today Louis turns his gimlet eye on crypto-currencies. Yes, bitcoin now has a market capitalization of US$1trn, but what does it actually do? What value does it add to economies and societies? On close examination, Louis finds that the functions of bitcoin are relatively straightforward, if not particularly edifying. And more to the point, they are already attracting the sort of attention that...

    18
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    Gavekal Research

    Financial Manias: The Electric Car Craze

    Almost wherever you look today, there are bubbles: in SPACs, in crypto, and in electric vehicles. In this report, the first of a series on today’s financial manias, Louis reviews Gavekal’s tried and tested framework for analyzing bubbles, and applies it to today’s mania for electric vehicles. He concludes that the electric car bubble is unique in history, and that the prognosis for many investors in the sector is less than encouraging.

    17
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    Gavekal Research

    Gold, Renminbi Bonds And The Clash Of Empires

    As the US expands its deficits to pay for pandemic relief, emerging economies that use the US dollar for reserve backing have reason to fret. China is being incentivized to accelerate development of the renminbi as both an international standard and store of value. Louis, Charles and Didier offer a potential roadmap for how renminbi internationalization may unfold.

    16
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    Gavekal Research

    Beautiful In Heaven

    Like the players on a rugby team, assets in a portfolio should both be all-rounders and excel at a specific job. For four decades, US treasuries both offered a stream of positive real yields and provided an anti-fragile portfolio hedge in times of market turbulence. Now however, Louis argues that US treasuries are at risk of falling from the position of anti-fragile favor.

    18
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    Gavekal Research

    A Discussion On Treasury Yields

    In recent days, long-dated US treasury yields have made a clear move higher. Unless there’s a violent turnaround in the coming days, February will mark the seventh consecutive month of flat-to-negative returns for treasuries This is an important development, with potentially far-reaching investment implications. Anatole and Louis discuss the outlook for yields, and the consequences for asset prices.

    11
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    Gavekal Research

    The Cherry On The Cake

    After GameStop's wild ride, hedge fund managers must figure out where they can find "safe" shorts to counter-balance a portfolio’s longs positions. The effect of this quandary may be to change the investment environment in a way that either skews risk-taking, or just reduces it. This comes as a range of other factors, inside and outside of the US, are starting to flash red. For Louis, this all adds up to a new market mood that...

    0
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    Gavekal Research

    Robinhood Versus The Sheriff Of Nottingham

    A large US hedge fund has received a reported US$2.75bn liquidity injection from Citadel and Point72 after it became subject to apparent short-squeeze attacks organized in internet chat rooms. In this piece, Louis asks why the regulators seem to be standing back from such episodes and wonders where markets are going if even big players can easily fall prey to "flash mobs".

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    Gavekal Research

    The First, And Last, Line Of Defense

    US equity valuations are stretched and bond yields are rising. This has always proved an ominous combination. What’s different this time is that the Federal Reserve continues to inject vast amounts of liquidity into the system. But will the Fed’s infections continue? And if they do, as the pandemic recedes will they prove big enough both to finance economic reopening and to keep asset prices afloat?

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