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Gavekal Research
Udith Sikand, Vincent Tsui
May 04th 2020
Strategy Monthly: Emerging Markets Under Pressure
Aside from China, emerging markets have not been hit as hard as rich countries by Covid-19, but their asset markets have been hammered. An optimistic view holds that undervalued EM assets can now bounce back. Udith and Vincent are more cautious: a dollar-squeeze could yet hurt markets that have otherwise decent fundamentals and attractive valuations.
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Gavekal Research
Vincent Tsui
May 01st 2020
The Benefit Of Panicking Early
Among industrialized nations, Taiwan stands out as the least affected by the Covid-19 pandemic. Taiwan chose to “panic early” by barring entry to foreign travelers, enforcing strict quarantines and assiduously tracking potential infections. The payoff has been no material disruption to domestic activity, which should lead to continued outperformance of the Taiwan dollar.
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Gavekal Research
Charles Gave
May 01st 2020
The Truth About Banks And Bonds
As I elucidated last week Knut Wicksell’s key idea was that in any market economy there are not one, but two key interest rates, whose relative position drives the cycle. The theory makes good sense, but computing the two rates is tricky. My insight is that I don’t need to compute these two rates but instead measure the structural performance of bank equities in each market.
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Gavekal Research
Didier Darcet
Apr 30th 2020
Webinar: Modeling Projections For The Covid-19 Epidemic
Gavekal Intelligence Software is collaborating with ETH Zurich and Shenzhen's Southern University of Science & Technology to track the spread of Covid-19. GIS principal Didier Darcet presented the findings in a conversation with Louis Gave
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Gavekal Dragonomics
Dan Wang
Apr 29th 2020
New Infrastructure, Old Problems
China is promising a boost in so-called “new infrastructure,” of which 5G network development is a major component. Dan explains how the scale of spending involved in building 5G infrastructure is too small to provide a meaningful boost to growth, and why any possible economic benefits from a faster mobile network will not be realized anytime soon.
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Gavekal Research
Louis Gave
Apr 29th 2020
The Kitsune Market (Part II)
Last week, Louis introduced the Kitsune, Japan’s mythical nine-tailed fox, and outlined four tail risks which could upend investment after Covid-19. Today he examines two more important tail risks: that the pandemic might not prove deflationary but inflationary, and the risk that the market’s “don’t fight the Fed” mentality could collapse under the weight of its own contradictions.
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Gavekal Dragonomics
Ernan Cui
Apr 27th 2020
Why The Recovery Slowed In April
Every economic indicator in China bounced upward in March, as the government relaxed its lockdown. But the trajectory of the recovery since then has not been as strong: many high-frequency indicators have plateaued in April. In this piece, Ernan explains how China’s cautious policymakers have kept many restrictions on daily activities in place.
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Gavekal Research
Louis Gave
Apr 24th 2020
The Kitsune Market
The Kitsune, the mythical Japanese fox which portends a change of fortune, has nine tails. Inspired by the unnatural conditions in markets, Louis has identified nine tail risks which could upend the investment world over the short to medium term. In the first installment of a two-part series, he outlines four tail risks that investors should consider hedging against.
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Gavekal Dragonomics
Thomas Gatley
Apr 23rd 2020
No Swift Recovery For Corporate Profits
Broad equity indexes in China seem to be faring much better than they should, given the poor Q2 outlook for Chinese corporate profits. Thomas surmises this is due to investors’ belief that policy stimulus will grow to 2009 levels and continue into Q3—a belief that is likely to disappoint, leading to a potential correction in H2.
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Gavekal Dragonomics
Rosealea Yao
Apr 22nd 2020
Steel Prices Signal Stability
Steel prices have stabilized after falling around 10% from their peak, reflecting a relatively rapid recovery in construction activity from the Covid-19 lockdowns. In this piece, Rosealea argues that the steel market is signaling a stabilization in China’s domestic demand from improving housing sales and a boost to infrastructure spending.
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Gavekal Research
Will Denyer, Louis Gave
Apr 22nd 2020
Webinar: Outlook For The US Economy And Global Markets
In Tuesday's webinar, Will Denyer reviewed the economic situation in the US and suggested how investors should position their portfolios, and Louis Gave presented his global macroeconomic view, taking into account the remarkable developments in the oil market.
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Gavekal Dragonomics
Andrew Batson
Apr 20th 2020
Macro Update: Climbing Out Of The Hole
After lockdowns produced a historic contraction in activity in February, China’s economy began climbing out of its deep growth hole in March. In this chartbook, the Dragonomics team outlines the shape of the recovery, explains which sectors are leading and which are lagging, and breaks down the policy response and implications for markets.
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Gavekal Research
Arthur Kroeber
Apr 20th 2020
The Shape Of Things To Come
As the US and Europe prepare to enter their second month of lockdown, the good news is that social controls, where they are imposed, are working. The less good news is that the exit from lockdowns is going to be long and arduous. It is likely that in most major Western nations, economic activity will remain at levels significantly below normal until well into the fall.
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Gavekal Research
Tom Miller
Apr 17th 2020
The Pressure For Debt Relief
Pressure is growing from struggling developing economies for a new round of debt relief. The difference with past campaigns is that the world’s biggest creditor to such nations is China, which could be owed at least US$380bn. China is likely to adopt a pragmatic approach and negotiate one-on-one forbearance agreements that end up costing it tens of billions of dollars.
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Gavekal Dragonomics
Tom Miller
Apr 16th 2020
East Africa’s Chinese Gamble
China’s deep economic roots in Africa provoke alarm in the US and concern among debtor nations, especially as some costly infrastructure projects prove financially unviable. But our latest in-depth DeepChina report explains why China’s presence is generally welcome in East Africa, even as the era of huge loans and megaprojects draws to an end.
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Gavekal Research
Arthur Kroeber
Apr 15th 2020
Heading In The Right Direction, Slowly
The Covid-19 epidemic now seems firmly under control in most major economies, and the direction of the disease data is consistently positive. From an infection-control perspective, the outlook is much more positive than when we did our last major review. The path to economic recovery, however, still looks slow and rocky.
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Gavekal Dragonomics
Wei He
Apr 15th 2020
Choosing Currency Stability
In the global crises of 1998 and 2008, China chose currency stability over competitive devaluation—and in the coronavirus crisis of 2020 it is making the same choice. In this piece, Wei argues that preventing capital outflows outweighs the PBOC’s other priorities for now, even if this means having to accept a less competitive currency.
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Gavekal Research
Charles Gave
Apr 15th 2020
The Revenge Of The Little Grey Men
There is a strange contradiction in most developed economic systems as they have been driven by freely assembling entrepreneurs who operate on the basis of money, which is the ultimate tool of state coercion. Charles is worried that the private, risk-taking element of our economies may be fully extinguished by responses to the Covid-19 crisis.
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Gavekal Dragonomics
Arthur Kroeber
Apr 14th 2020
A Poor Prognosis For US-China Ties
The Covid-19 pandemic has been bad for the health of the US-China relationship, which was already in poor shape. In this piece, Arthur explains how US security hawks have seized the opportunity to hammer home the argument that China is untrustworthy, pushing the US debate over China policy in a more confrontational direction.
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Gavekal Research
Louis Gave
Apr 14th 2020
An Anti-Fragile Beauty Contest
Following the 2008 crisis, the S&P 500 bottomed on March 9 2009. Since then, an investor in physical gold would have gained 82.2% while an investor in 10-year US treasuries would have made gains of 65.6% (with coupons re-invested). But with both assets testing their pre-crisis highs, there are several reasons to believe that gold is now set to outperform structurally.
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