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Gavekal Dragonomics
Dan Wang
Jun 29th 2020
The US Takes Action Against Military Fusion
New regulations from the US Department of Commerce which go into effect on Monday could deny US-origin technologies to a broad swath of Chinese companies. In this Quick Take, Dan explores which firms are most at risk of falling afoul of these regulations and how their supply chains might be affected.
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Gavekal Research
Louis Gave
Jun 29th 2020
Towards More Of The Same?
Investors looking at the impressive rally in global equities since mid-March have been forced to come to one of three conclusions: (i) the Covid-19-induced halt to our economies will soon fade away like a bad dream, (ii) equity investors are crazy, or (iii) a growing number of investors think the cash they hold is bound to become worthless.
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Gavekal Dragonomics
Simon Cartledge
Jun 25th 2020
The Future Of Hong Kong
Whither Hong Kong? After a year of political turmoil, uncertainty about the city’s prospects is the highest it has been in decades. This 20-page DeepChina report examines Hong Kong’s historical trajectory, and concludes the city is in long-run decline—even though it will continue to be an important financial gateway between China and the world.
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Gavekal Research
Vincent Tsui
Jun 24th 2020
Video: Behind The Resilience Of Hong Kong's Markets
Hong Kong has been beset by a string of bad news, from mass street protests, through Covid-19, to national security legislation of unknown scope and severity imposed by the mainland. Yet you wouldn’t guess it from looking at the city’s property market—the world’s priciest—or its stock market where several mainland tech companies are lining up to do their initial public offerings. Vincent explains the disconnect.
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Gavekal Research
Tom Miller
Jun 23rd 2020
A Friendlier Supply Chain Required
Covid-19 has revealed reliance on Chinese supply chains as a serious national security risk. But shifting manufacturing of vital goods to other parts will be no easy task, especially when alternatives like Vietnam remain so dependent on imports from China themselves. Meanwhile, the pandemic has made other potential locations—notably India—less attractive.
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Gavekal Research
Simon Pritchard
Jun 22nd 2020
China Legislates For Hong Kong
The summary of Hong Kong’s national security law released on Saturday is a tough read for advocates of a common law system. It represents a hybrid of China’s and Hong Kong’s legal systems that effectively ends the separation of powers between the executive and judiciary. How quickly the city changes as a result depends on the severity of enforcement.
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Gavekal Dragonomics
Xiaoxi Zhang
Jun 22nd 2020
The Most Cautious Of Central Banks
China’s medium-term lending facility rate and the loan prime rate were left unchanged in June, while short-term market interest rates have risen. In this Quick Take, Xiaoxi argues that, though the PBOC is likely to cut policy interest rates further this year, the pace of rate cuts is likely to be slower in the second half than in the first.
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Gavekal Dragonomics
Rosealea Yao
Jun 19th 2020
Explaining The Iron Ore Surge
Chinese iron ore prices have surged by 30% since May due to growing Chinese demand, shrinking Brazilian supply and increased logistics costs. In this Quick Take, Rosealea explains why prices are likely to remain elevated in the coming months but might fall precipitously in the second half of the year.
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Gavekal Dragonomics
Dan Wang
Jun 18th 2020
The Range Of US Sanctions
US President Donald Trump has pledged a response to Beijing’s decision to impose national-security legislation on Hong Kong, and has now signed legislation to sanction officials involved in the crackdown on Uighurs in Xinjiang. In this piece, Dan outlines the various legal tools that the US can bring to bear and their possible effects.
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Gavekal Research
Udith Sikand
Jun 18th 2020
Video: High Stakes In The Himalayas
In this video, Udith argues that the mayhem seen on the India-China border this week will provide another catalyst for Indian nationalists who want to lessen the country’s reliance on China, even if that means accepting far slower economic growth.
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Gavekal Research
Tom Miller, Udith Sikand
Jun 18th 2020
Sticks And Stones May Break A Trade Relationship
Monday night’s deadly face-off between Indian and Chinese soldiers in the Himalayan mountains threatens to rupture a burgeoning trading relationship between Asia’s two largest nations. Diplomats should be able to deescalate military tensions between the two nuclear-armed countries, but it may be harder to normalize economic ties.
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Gavekal Research
Louis Gave
Jun 18th 2020
The Market’s Perception Of Scarcity
It is a long-running trope of Gavekal’s research that assets can have value either as tools or as jewels. Tools have efficiency value and jewels have scarcity value. The rule that seemed to govern the relative performance of these over the last 50 or so years appears to have broken down. Louis wonders if this is because investors have reversed their perceptions of what is "scarce" and what is "abundant".
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Gavekal Dragonomics
Xiaoxi Zhang
Jun 16th 2020
Arbitrage Comes Out Of The Shadows
The Covid-19 pandemic has shocked China’s financial regulators into allowing a substantial rebound in total credit growth. But they are not worried enough to abandon their strict control of shadow finance. As Xiaoxi explains in this piece, a recent bounce in the shadow finance numbers is due to a popular arbitrage which is now being contained.
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Gavekal Dragonomics
Thomas Gatley, Rosealea Yao, Xiaoxi Zhang
Jun 15th 2020
The Beginnings Of A Plateau
China’s economic data for May continued April’s wider recovery; however, Thomas, Rosealea and Xiaoxi argue that this upward momentum is losing steam. Weak external demand, tapering industrial production and Beijing’s aversion to further monetary easing all support the idea that China’s post-Covid bounceback is starting to plateau.
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Gavekal Research
Louis Gave
Jun 12th 2020
The Froth Comes Off
Recent weeks saw telltale signs of markets getting silly: firms with no sales reaching U$26bn valuations; airline-focused exchange traded funds jumping from US$50mn in size in January to US$1.5bn, and bankrupt firms becoming five and 10 baggers. This kind of activity may lead to one of three conclusions.
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Gavekal Dragonomics
Xiaoxi Zhang
Jun 12th 2020
Can Small-Business Lending Be Fixed?
As China tries to get the economy back to normal, it is focusing more on the plight of small businesses, who have lost weeks or months of revenue to the pandemic. Yet it has resisted offering the loan guarantees other countries have employed. In this piece, Xiaoxi assesses the other tools China is using to boost lending to the smallest firms.
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Gavekal Research
Tom Holland
Jun 11th 2020
The Derating Of The Dollar
In the last four weeks as market participants have reassessed relative risk premiums, they have found it increasingly easy to identify currencies which at the margin are looking more attractive than the US dollar. As a result, the dollar has weakened both against developed world and emerging market currencies. This weakness is acquiring momentum, and may have further to run.
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Gavekal Research
Dan Wang
Jun 11th 2020
Video: The Threat To Chinese Tech
The US is deepening its effort to limit Chinese technology giant Huawei’s access to components that rely on American design, which may prevent Huawei from rolling out 5G networks. The US is also broadening its efforts to constrain Mainland tech firms by using sanctions that impact suppliers to China’s government and military.
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Gavekal Dragonomics
Rosealea Yao
Jun 10th 2020
The Property Balancing Act
Local governments are balancing between encouraging housing construction and containing excess housing inventory. Although they have struck a balance so far, Rosealea argues that the growing vacancies in lower-tier cities coupled with depressed household consumption render current policies unsustainable in the long run.
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Gavekal Research
Charles Gave
Jun 10th 2020
Accelerating Into Inflation
Long-time readers will be familiar with Gavekal’s Four Quadrants framework, which describes how the economy alternates between periods of inflation and deflation, and cycles from boom and bust and back again, and which we use to illustrate which asset classes investors should favor and when. Although this is one of Gavekal’s oldest frameworks, it provides an extremely useful way to think about how the macroeconomic environment is set to evolve...
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