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Gavekal Research
Louis Gave
Mar 09th 2020
The Bond Blow-Off Top
The freakout in markets spurred by the coronavirus outbreak has seen US treasuries deliver one of their strongest two-week performances in the post-Cold War era. Louis argues that these moves leave investors with a stark choice to make: either we are seeing a “blow-off top”, or alternatively the world is facing an impending economic ice age.
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Gavekal Dragonomics
Thomas Gatley, Xiaoxi Zhang, Wei He
Mar 09th 2020
Limited Help For Struggling SMEs
Chinese policymakers have announced a wide range of monetary and fiscal measures intended to help the smaller firms hit hardest by the Covid-19 outbreak. The helpfulness of these measures will likely only be marginal; however, Thomas, Xiaoxi and Wei are cautiously optimistic that most SMEs can still weather the ongoing crisis.
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Gavekal Dragonomics
Lance Noble
Mar 06th 2020
Getting Serious About Biosecurity
China’s government is rethinking its approach to biosecurity in order to reduce the odds of future outbreaks of infectious disease. In this piece, Lance explains what treating biosecurity as a part of national security will mean for regulation, public health and the biotechnology sector.
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Gavekal Research
Louis Gave, Andrew Batson, Cedric Gemehl
Mar 06th 2020
Audio & Transcript — Gavekal Research Call March 2020
In Thursday’s conference call, Louis-Vincent Gave, Andrew Batson and Cedric Gemehl discussed the policy and market reactions to the Covid-19 outbreak.
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Gavekal Research
Louis Gave
Mar 06th 2020
The Unfolding Rotation
Last Friday, the markets rallied hard into the close as investors anticipated a coordinated policy move over the weekend. With policy responses in the rear view mirror, this weekend will likely prove different. Markets will continue to be choppy in the immediate future. Even so, amid all the volatility, some interesting developments are emerging.
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Gavekal Research
Thomas Gatley
Mar 05th 2020
Behind The A-Share Rebound
Although China is ground zero for the coronavirus outbreak, its onshore stock markets are the world’s best performing major markets so far this year by a considerable margin. For the most part this is due to mood-enhancing domestic policy support, which is likely to continue to counteract the catastrophic near term earnings outlook.
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Gavekal Research
Louis Gave
Mar 04th 2020
Exponential Optimization
The bull market of the last few years has been built on the twin assumptions that globalization will continue, and that interest rates will remain low for years to come. These convictions have propelled an exponential wave of optimization. As the coronavirus calls key assumptions into question, the worry is that the giant bubble which sits at the heart of the system may be about to burst.
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Gavekal Dragonomics
Ernan Cui
Mar 03rd 2020
A Month Of Lost Wages
As the rise in new cases of Covid-19 in China has slowed, provinces are easing their drastic restrictions on movement and businesses are reopening. But the extended shutdown has already imposed great costs on migrant workers. Ernan estimates lost wages will be 3-4% of annual household income, though with a smaller impact on total consumption.
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Gavekal Research
Anatole Kaletsky
Mar 02nd 2020
When To Catch A Falling Knife
Now that the Federal Reserve has hit the panic button, is it time to try to catch the falling knife on Wall Street? Technical analysis and investor sentiment suggest that equity prices may still have somewhat further to fall before they find a sustainable floor, even if the viral threat is probably overstated and stimulus by major governments will eventually outweigh the temporary economic collapse.
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Gavekal Research
Research Team
Mar 02nd 2020
Strategy Monthly: Global Virus, Local Reactions
In the last week of February, global investors woke up to the massive effect of China’s coronavirus lockdown and the risks of a global pandemic. The resulting disruption to global supply chains will be widespread and long lasting. But not all is bleak. The Fed has promised to support the US economy, and many emerging markets have room both for expansionary fiscal policies and interest rate cuts.
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Gavekal Dragonomics
Rosealea Yao
Feb 28th 2020
The Worst Is Yet To Come For Steel
Steelmakers have continued production despite a precipitous drop in demand, resulting in a short-term inventory glut. As Rosealea explains, this will lead to continued downward pressure on steel prices, at least until the construction sector recovers from the coronavirus crisis and drives demand back up to meet supply.
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Gavekal Research
Louis Gave
Feb 28th 2020
The Last Shall Be First
Just a week ago, the S&P 500, Nikkei 225 and Eurostoxx 50 were all looking healthy. But over the past week, every major market has fallen by anywhere from -6% to -12%. This is highly unusual. The S&P 500 has only fallen by -10% or more four times in its post-1945 history. Each of these drops ended up having hugely important investment ramifications.
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Gavekal Research
Charles Gave
Feb 27th 2020
The Fragility Of A Complex World
The question investors must confront is whether the global economy is a slow but resistant beast of burden, or a finely tuned machine which has now been thrown off its axis.
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Gavekal Dragonomics
Wei He
Feb 27th 2020
The Next Infrastructure Stimulus
As size of China’s growth shock from the coronavirus shutdown becomes clear, yet another infrastructure stimulus looks to be on the way. In this piece, Wei assesses the scale of the possible boost. The most likely outcome is that public-works spending accelerates to 8-9% in 2020 from just 3.3%, a nice boost but still well below historical peaks.
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Gavekal Research
Charles Gave
Feb 26th 2020
The Velocity Of Money In The Time Of Covid-19
Most serious investors know MV=PQ, where M is the money supply, V is the velocity of money, P is the general price level and Q is output. The typical approach is to wait for M, P and Q to be published and so derive V, which renders the equation a mere tautology. In contrast, Charles has long thought V to be an independent variable whose variations impact P and Q.
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Gavekal Dragonomics
Thomas Gatley
Feb 25th 2020
The Covid-19 Cost To Corporate Cashflow
The shutdown of normal economic activity during the coronavirus outbreak is going to mean a huge hit to corporate cashflow in Q1. In this piece, Thomas outlines the difficult road ahead for Chinese firms: many will have no choice but to default on cash obligations to staff, banks and suppliers, as well as curtail their capex plans for the year.
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Gavekal Research
Louis Gave
Feb 25th 2020
Doing On Monday What We Wish We’d Done On Friday
Monday was the epitome of Charles’s observation that in a down-market, the temptation to sell on Monday what you wish you’d sold on Friday can become overwhelming. As markets sold off on Monday following a weekend of bad news, the following developments seemed especially relevant.
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Gavekal Research
Andrew Batson
Feb 24th 2020
Far From Priced In
Asian markets switched to risk-off mode Monday as investors reacted to further coronavirus news outside of China. Yet in onshore markets, investors are optimistic that the economy will quickly normalize as the spread of the virus comes under control, and that the central bank will provide policy easing. Neither belief looks well-founded at the moment.
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Gavekal Dragonomics
Xiaoxi Zhang
Feb 20th 2020
A Looming Private Liquidity Squeeze
A March spike in maturing bonds is going to mean significant liquidity challenges for many companies, particularly as they continue to grapple with the coronavirus and its economic fallout. The government has announced some supportive policies, but as Xiaoxi explains these measures are likely to favor large and state-owned companies, leaving smaller firms at risk of going under.
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Gavekal Dragonomics
Lance Noble
Feb 19th 2020
Multinationals Take The Long View
The coronavirus outbreak has undoubtedly had a significant impact on multinational companies’ operations in China. Nonetheless, drawing from a dozen interviews with China-based executives, Lance argues there is little evidence the outbreak will cause firms to rethink their long-term China strategies.
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