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    Gavekal Research

    Webinar: Europe’s Cruel Winter

    As the pandemic intensifies across Europe growth prospects in the first quarter are dimming, but investors are focused on a potential economic reopening by the spring. In yesterday’s webinar, Anatole Kaletsky, Nick Andrews and Cedric Gemehl discussed whether markets are overly optimistic since the European Union seems to have botched its vaccine procurement strategy.

    0
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    Gavekal Research

    The Logos, Idiotes And Demagogues

    Charles revisits the idea of the Greek "logos", "idiotes", demagogues and citizens, and how the Greeks believed that those who controlled the logos—the language used to describe the world—ipso facto controlled the political system. Problems arise when a new, competing logos started to emerge.

    8
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    Gavekal Dragonomics

    Small Borrowers Still Struggling

    Even after a dramatic economic recovery, many of China’s smallest businesses are still struggling. In this piece, Xiaoxi shows how the government’s financial-support measures did little to improve small businesses’ access to financing, which is already tightening. But the policies are helping banks avoid a potential spike in bad loans.

    0
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    Gavekal Research

    Biden’s United Front Against China

    As the outgoing Trump administration exits with a flurry of executive actions directed against China, Beijing is not sitting around hoping for Joe Biden to spark a new era of détente with the US. The recent tightening of control in Hong Kong shows that President Xi Jinping has no intention of giving an easy early ride to a leader who has pledged to build a “united front of US allies and partners” to constrain a resurgent China. The European...

    1
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    Gavekal Dragonomics

    A Two-Speed Recovery

    China’s Q4 GDP growth surpassed pre-Covid rates, with housing and manufacturing leading while services lagged and infrastructure investment slowed. In early 2021, this divergence is likely to continue as consumers stay home for the Chinese New Year and poor credit growth drags on infrastructure investment.

    0
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    Gavekal Dragonomics

    For Exports, It’s Stronger For Longer

    China’s exports have been boosted by two side effects of the Covid-19 pandemic: a shift of consumer spending to goods from services, and the failure of manufacturing in other countries to get back to full capacity. How long can those advantages last? Thomas argues they will continue to boost exports through the first half of 2021.

    1
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    Gavekal Dragonomics

    New Ceilings For Property Financing

    China’s policymakers are expanding their restrictions on bank financing of the property sector, imposing limits on mortgage lending in addition to curbs on borrowing by developers. In this report, Rosealea explains why the new regulations do not shift her expectations of flat property sales and a modest decline in construction activity in 2021.

    2
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    Gavekal Research

    The Squeeze Of Old Hong Kong

    Last Wednesday Hong Kong police arrested scores of pro-democracy activists for joining forces to try and win a local parliamentary election and thereafter block government legislation. The use of a tough new national security law to suppress routine political organization threatens more international opprobrium that will further cut the city off from the Anglosphere.

    3
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    Gavekal Dragonomics

    Covid Headaches Continue

    China diagnosed 527 new cases of Covid-19 in the first 10 days of 2021, mostly in Hebei province, in the biggest local outbreak since July 2020. In this Quick Take, Ernan explains why this outbreak is challenging China’s Covid-19 playbook and why its timing is particularly concerning ahead of the Chinese New Year.

    0
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    Gavekal Research

    Strategy Monthly: Darkness Before Dawn? The Covid Vaccine Outlook

    As a new wave of Covid infections grips major economies, and social restrictions return, the hopes for a return to pre-pandemic normal rest on the rollout of vaccines. With vaccine production ramping up, most developed economies could reach herd immunity by late in 2021. But many emerging economies will take longer, and several risk factors could still derail the rollout.

    0
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    Gavekal Research

    Portfolio Construction Over The Next Two Years

    On Thursday, Anatole set out his view that undivided Democratic Party control of both the executive and legislative branches of the US government opens the door for unconstrained Keynesian stimulus, which will be highly positive for the US economy and equities. It will probably come as little surprise to Gavekal clients that I should dispute whether such unconstrained Keynesianism will be good news either for the economy or for US equities

    4
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    Gavekal Dragonomics

    Not As Hawkish As Feared

    The People's Bank of China is one of the world’s most hawkish central banks—but just how hawkish will it be in 2021? Bond market investors worry that the PBOC, eager to normalize policy, will be pushed into hiking rates by higher inflation. In this piece, Wei argues those worries are misplaced, and that bond yields have more room to fall.

    0
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    Gavekal Dragonomics

    The Renminbi Races Out Of The Starting Gate

    The renminbi gained 1% against the US dollar in the first two trading days of 2021, leading China’s central bank to signal a pushback against appreciation by tweaking foreign-lending limits. In this Quick Take, Wei explains that such moves are likely to slow than stop the currency’s gains, as fundamentals still favor the renminbi.

    0
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    Gavekal Dragonomics

    Decoding The Assault On Alibaba

    The antitrust investigation into Alibaba, following close on the heels of the cancellation of the Ant IPO, has raised big questions about the changing political environment for Chinese internet companies. In this piece, Andrew considers the best- and worst-case scenarios, and concludes that at a minimum, growth prospects have dimmed.

    8
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    Gavekal Research

    Gravity Or Liquidity? Which Will Win In 2021?

    In hindsight, 2020 showed that if three conditions are met, a stock can break free from the earth’s gravity, and lift off for destinations only sci-fi writers could have imagined. Consequently, one of the most important questions for investors in 2021 is whether such inter-galactic travel can continue. Or will the coming year instead see a shift in investor behavior, with gravity once again exerting its downward pull?

    5
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    Gavekal Research

    Goldilocks And The 10 Bears Of 2021

    In recent years Anatole has written a series of articles describing 10 key risks for investors. He readily accepts that this year’s exercise was rendered redundant by the emergence of Covid-19 in January. Next year, however, he believes that a greater range of factors could weigh on markets and in this piece assesses them one by one.

    0
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    Gavekal Dragonomics

    A Looming Correction For Iron Ore

    Iron ore prices hit an eight year high in early December in response to a tight steel market. Rosealea writes that this uptick in steel demand, likely due to China’s strong steel-intensive export figures, is unsustainable and should subside in the new year—resulting in a correction for iron ore prices in the coming months.

    0
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    Gavekal Research

    The Boom Of 2021

    As he gazes into next year, Charles has reviewed some of his most trusted indicators and found that the US is moving towards an inflationary boom that should mean stronger growth, rising inflation and higher bond yields. If the Federal Reserve acts to crimp this adjustment in the price of money, he warns that the US dollar could tank.

    10
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    Gavekal Dragonomics

    The Road To Policy Normalization

    China’s economy is almost back to normal after Covid-19, and that means economic policy will also normalize: the question is not whether, but how. In this piece, Wei argues that the most likely policy settings for 2021 will be somewhat tighter fiscal policy and a deceleration in total credit growth, but no increase in policy interest rates.

    2
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    Gavekal Research

    The Lure Of Korea In A Rotation

    Hopes for a return to normality as Covid vaccines get rolled out have helped fuel a global rotation from growth to value equities, and from previous “Covid winners” to “Covid losers”. Due to its better pandemic management, clear policy headroom and exposure to the electronics sector, Asia has generally been a Covid winner. Hence, Udith Sikand and myself have argued that beaten-up non-Asian markets are the way to play this rotation (see Asia’s...

    0
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    Gavekal Dragonomics

    A Reluctant Executioner

    MSCI announced on Tuesday the removal of 10 Chinese securities from its indexes in response to a US executive order. In this Quick Take, Thomas explains why MSCI’s narrow interpretation of the order leads to risk of more Chinese securities being added to the list, and how the decision adds to existing headwinds for Chinese equities.

    1
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    Gavekal Dragonomics

    Credit Has Peaked, Growth Has Not

    China’s economic momentum continued to accelerate in November despite an October peak in credit growth, with exports and manufacturing investment taking the lead while more policy-dependent sectors plateaued. In this piece, the Dragonomics team explains why China is likely to maintain its strong economic growth through 1Q21.

    0
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    Gavekal Research

    The 10 Important Changes Of The Past Year

    Two years ago, 10-year treasury yields were falling (and trading below their 200-day moving average), oil prices were falling (and also below trend) and the US dollar was rising (and trading above its trend level). Today, the situation has reversed for all of these anchor prices in the global system. This profound change can be explained with reference to 10 tectonic shifts in the global economy.

    1
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    Gavekal Dragonomics

    The Re-Centralization Of Finance

    China’s banking system has been steadily decentralizing for thirty years, with smaller and local banks gaining market share from the large, centrally controlled state banks. In this piece, Xiaoxi and Andrew show that this long-term trend has now come to a halt, and argue that the banking system will start to re-centralize in coming years.

    0
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    Gavekal Dragonomics

    Social Credit And Digital Governance

    China’s social credit system is widely misunderstood as a totalitarian tool. The reality is that it is a relatively low-tech part of a sophisticated Communist Party strategy to use digital means to deliver both better governance and social control. In this 22-page DeepChina report, Rogier Creemers explains the truth behind the social credit myths.

    2
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    Gavekal Dragonomics

    Webinar: China And The World Economy In 2021

    Arthur Kroeber and Dan Wang sketched out the likely course of the US-China rivalry under the new Biden administration; He Wei and Thomas Gatley analyzed key developments in China's economy and markets, and Gavekal CEO Louis Gave presented his views on the forces shaping global markets.

    0
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    Gavekal Dragonomics

    A New Reality For Commercial Property

    Vacancy rates for office and retail space are picking up sharply this year despite a broad return to normality in China. In this report, Rosealea argues that Covid-19 accelerated an ongoing shift towards at-home work and entertainment. Developers must now grapple with the new reality that demand is unlikely to ever return to pre-Covid levels.

    0
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    Gavekal Research

    The Three Key Prices: The US Dollar

    It is an axiom of Gavekal’s research that the starting point for looking at the global macro landscape is that three prices matter above all others: the 10-year US treasury yield, the price of oil, and the US dollar exchange rate. In the third of a three-part series, Louis examines the US dollar.

    12
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    Gavekal Research

    Sell A-Shares Into Strength

    Over the last month, onshore Chinese equities have got swept up in the global rally. The CSI 300 gained 7% in November, surpassing July’s peak to set a new high for the year this week. And the broader Shanghai index is on the cusp of following. However, this is a rally running on fumes.

    6
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    Gavekal Research

    Webinar: Global Investment Roundtable, December 2020

    The US equity market is seeing a switch from the winners of the pandemic like technology and online retail, to the beaten-up losers such as travel plays. At the same time, hopes for a strong economic recovery in 2021 are juicing up value stocks. Similar dynamics are being seen in other major markets. Our team of analysts discussed what happens next, and what’s in store in 2021.

    0
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    Gavekal Dragonomics

    Access To Global Capital Has Peaked

    After years of inflows via IPOs and foreign portfolio investment, the US is now moving to deny Chinese firms access to global capital. As a result, Thomas explains that the firms will instead have to rely on domestic markets for equity fundraising, which could cause a liquidity drag in onshore and Hong Kong equities.

    0
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    Gavekal Dragonomics

    Eroding The Implicit Guarantee

    China’s financial regulators recently stepped in to calm a corporate bond market roiled by the unexpected default of a local state-owned enterprise. In this report, Wei argues that this reassurance does not translate to a reassertion of the implicit sovereign guarantee for local SOE debts; in fact, more local SOE defaults look likely for 2021.

    0
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    Gavekal Research

    The Fate Of Chinese Listings In The US

    Today, there are 365 Chinese companies listed on US markets. A handful of these have dual listings in Hong Kong, but for most, the US is their sole listing. Together, these 365 companies account for US$1.92trn of market capitalization. This increasingly looks like an anomaly. Why should Chinese companies choose to raise capital on Wall Street when they can tap the capital market in Hong Kong?

    7
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    Gavekal Dragonomics

    Huawei's Slow Strangulation

    The US government’s August decision to deny Huawei access to every advanced chip in the world was a death sentence for the firm, but its execution has not been swift. In this report, Dan outlines the uneven effects of the decision on Huawei’s different business lines and explains why any solution to the firm’s troubles will have to be political.

    0
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    Gavekal Research

    The Importance Of The Renminbi

    In days long gone by, the yen’s exchange rate affected asset prices around the world. Today, it is not the yen that investors need to watch, but the renminbi. And in the last few months the renminbi has been strengthening, with important implications for everything from global bond yields, through energy prices, to the relative performance of US growth and value stocks.

    15
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    Gavekal Research

    Webinar: Hong Kong Under The National Security Law

    Hong Kong has spent five months living under a tough national security law imposed on it from Beijing. The direct impact has been a sharp curtailment of opposition political activity that has sparked sanctions from the United States. Now, China has plans for more changes to Hong Kong's legal system, with a requirement for judges to be patriots. In yesterday’s webinar, Vincent Tsui, Dan Wang, Tom Holland and Simon Pritchard discussed the...

    0
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    Gavekal Dragonomics

    How Covid-19 Changed Chinese Consumers

    China’s consumer recovery from lockdown initially lagged other economies, but now looks more sustainable. Discretionary goods are booming, and the online shakeout of retail continues, though other services and staples are less exciting. In this chartbook, Ernan presents a special Covid-19 edition of her annual review of the Chinese consumer.

    0
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    Gavekal Dragonomics

    This Time Is Different For Industrial Policy

    Chinese bureaucrats are now busily drafting plans to achieve self-reliance in high technology. But as Dan argues in this piece, this latest industrial-policy push will be different. Thanks to US restrictions on Chinese firms, notably Huawei, the private sector is already convinced that developing substitutes for imported technology is necessary.

    0
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    Gavekal Research

    Three Strikes And Still In

    In the last three weeks, investors in Chinese assets have suffered a series of shocks, with the suspension of the Ant IPO, antitrust actions against China’s tech giants, and the high-profile default of a local state-owned enterprise. Louis examines what may be going on behind the scenes, and sets out how investors should interpret these successive shocks.

    11
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    Gavekal Dragonomics

    The Macro Implications Of Microfinance

    The surprise suspension of Ant Group’s IPO on November 4 was caused by the publication of new rules on online microfinance—a tiny sector that accounts for just 0.3% of China’s banking system. In this piece, Xiaoxi explains why microfinance is of so great macro importance to China’s financial regulators, and what they will do next.

    0
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    Gavekal Dragonomics

    The Second Wave Of Bond Inflows

    There was a record increase in foreign holdings of Chinese bonds in the second and third quarters of 2020, almost all of it from private-sector investors. In this report, Wei explains why foreign investors will likely continue to buy up Chinese bonds and why Chinese authorities appear relaxed about this second wave of inflows to the bond market.

    8
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    Gavekal Dragonomics

    Cracks Appear In Local Support For Bonds

    A missed debt payment last week by a local state-owned enterprise in Henan province has created turmoil in China's corporate bond market. In this report, Xiaoxi and Wei explain why the default undermined one of the market's fundamental supports and why investors are now likely to be more discerning between provinces.

    7
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    Gavekal Dragonomics

    Full Steam Ahead

    Economic data released on Monday showed China’s continued economic normalization, with property sales and infrastructure investment outperforming expectations, industrial activity staying strong and the consumer recovery picking up. In this Quick Take, the Dragonomics team outlines why this environment is favorable for bonds and risky for equities.

    2
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    Gavekal Research

    After RCEP: A Tough Ask For Pivot 2.0

    On Sunday, China signed the Regional Comprehensive Economic Partnership. With the 15-nation trade agreement, Beijing has successfully positioned itself at the center of the region’s trade and investment networks. This will make it hard for US President-Elect Joe Biden to fulfill his pledge to place “America back at the head of the table” in international relations, at least in Asia.

    3
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    Gavekal Dragonomics

    Another Trump Attack On Chinese Stocks

    President Trump signed an executive order on Thursday barring US investments into a list of 31 Chinese firms, 13 of which are publicly listed. In this Quick Take, Dan and Thomas outline what obstacles the order faces before implementation, what impact it would have for investors and what the move means for Chinese equities both on- and offshore.

    0
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    Gavekal Research

    Webinar: China After The Recovery

    Having gone into lockdown first, China was also the first economy to emerge, and has since enjoyed a rapid rebound in industrial production and exports, reflected in financial markets. But now that the economy is back to “normal”, policymakers have returned to a conservative stance which focuses on financial stability.

    0
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    Gavekal Dragonomics

    The Internet Is No Longer Exempt

    Recent major regulatory actions have sent a strong message to Chinese internet companies: you’re not special anymore. In this report, Andrew, Dan and Ernan explain why anti-competitive practices, prudential risk and the pandemic are now prompting policymakers to regulate online firms on the same basis as their offline counterparts.

    2
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    Gavekal Research

    China’s Departure From Past Standard Operating Procedures

    China is emerging from the pandemic stronger than its big economic rivals in the West. It is an irony that the US and Europe are applying expansive Keynesian-type solutions of the type China has deployed in recent crises, but now seems to be rejecting. The result, Louis argues, may be that China starts to enjoy a "triple merit" scenario.

    2
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    Gavekal Dragonomics

    The Race To Decouple

    Both the US and China now seem eager to reduce their mutual economic dependencies. However, such a process is different for either country: Dan explains that China’s reliance on the US is narrow and technical in scope while American dependence on China is more wide-ranging. The US therefore faces more complex challenges in the “race” to decouple.

    7
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    Gavekal Dragonomics

    Housing & Construction Review 2020

    China’s property sector led the rebound from Covid-19 lockdown, but how long can the new boom last? In her annual chartbook, Rosealea explains the outlook for 2021 after a very volatile 2020. Housing policy has turned tighter after signs of overheating, which points to sales flattening and construction activity declining next year.

    0
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    Gavekal Dragonomics

    Fine-Tuning The US-China Rivalry

    In almost no area of the US-China relationship can President-elect Biden fully reverse the combative approach President Trump has put in place. Instead, writes Arthur, the Biden administration will likely fine-tune regulations to balance US economic and security interests, all while working closer with US allies—none of which will be easy.

    0
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    Gavekal Research

    Video: China's Grand Plan For The Next Two Decades

    While the US has been busy tying itself in knots over the 2020 presidential election, the Chinese government, with no electoral calendar to worry about, has quietly been setting out its grand strategy for the country’s development over the next two decades. In this video, Gilliam cuts through the impenetrable ideological jargon to identify the key themes running through Beijing’s long term policy pronouncements.

    0
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    Gavekal Research

    Webinar: US Election & Global Investment Roundtable (in French)

    Charles Gave, Louis-Vincent Gave, Didier Darcet and Cedric Gemehl delved into the results of the US election, and discussed the latest impact of Covid-19 on the global economy and markets. Additionally, they presented Gavekal’s latest research on portfolio construction.

    0
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    Gavekal Research

    Ant Stomped

    Ant Group’s US$35bn IPO was set to be the ultimate market validation of the new world of fintech and financial innovation. But by suspending Ant’s IPO at the last minute China’s financial regulators have demonstrated there is still a force more powerful than the coming wave of financial innovation: the state. It’s a lesson that big tech giants outside China may also need to take to heart, as they face increasing regulatory scrutiny from US and...

    5
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    Gavekal Research

    The New Geostrategic Pressure Point

    Investors today are overwhelmingly focused on the economic impact of the Covid pandemic and the possible effects of the US presidential election. Yet something happened over the summer that although not at all traumatic by comparison, may end up having much more far-reaching consequences for world geopolitics.

    6
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    Gavekal Dragonomics

    A Surge In Earnings

    Net profits of China’s listed non-financial firms surged in Q3, reflecting the fundamental improvement in the Chinese economy. In this Quick Take, Thomas explains why business conditions, although improved, are not as good as the net profit figures might suggest—and why Q4 will likely represent the peak of China’s corporate profit cycle.

    0
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    Gavekal Research

    Strategy Monthly: Chinese Assets After The Recovery

    China was the first economy into lockdown, and the first to emerge, enjoying a rapid rebound in industrial production and exports. Uniquely among major economies, China has already regained and exceeded pre-Covid levels of output. The speed and strength of this early recovery was reflected in financial markets, with equities rallying hard, bonds selling off, and the renminbi appreciating on heightened capital inflows.

    0
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    Gavekal Research

    Video: Hong Kong's Resilience

    Massive inflows of capital into Hong Kong’s financial system ahead of this week’s record-breaking US$34bn IPO for Chinese fintech giant Ant Group represent a major vote of investor confidence in Hong Kong’s future as a financial center, just months after many international commentators were writing the city’s obituary following Beijing’s imposition of a sweeping national security law. Vincent explores the underpinnings of this confidence.

    0
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    Gavekal Research

    The Competition For 2035 Begins

    While much of the world struggles to make it through 2020, the Chinese Communist Party is setting its sights on 2035: its annual plenum closed with a decision on its broad goals for the next 15 years. In this piece, Andrew explains how China is adapting its priorities to a less favorable international political and economic context.

    3
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    Gavekal Dragonomics

    Themes For The Coming Plan

    Party officials are gathering this week to discuss China’s 14th Five-Year Plan, a document intended to guide the country’s development from 2021 to 2025. In this report, Gilliam outlines the plan’s likely major themes and why it represents the first step in Xi Jinping’s ambitions of transforming China into a “modern socialist country” by 2049.

    0
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    Gavekal Research

    Webinar: China's Fintech Showdown

    China’s financial technology industry has been chaotic for two decades, with Ant Group launching pioneering new products while regulators and competitors play catch-up. With Ant Group ready for its IPO, the push-and-pull between the firm and regulators is grabbing institutional investors’ attention. Matthew Forney and Laila Khawaja of Gavekal Fathom China addressed this tension and also the broader impact of regulation on the country's...

    0
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    Gavekal Research

    The Three Key Prices: 10-Year Treasury Yields

    A core thesis for Louis is that in financial markets three prices matter above all others: the price of oil, the price of US dollars and the yield on 10-year US treasuries. In this second part of a three-part series, he addresses the bond market question. US treasuries are currently pricing in a highly deflationary future on both a cyclical and structural basis. Such an outcome would defy recent experience in the US bond market.

    4
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    Gavekal Dragonomics

    Macro Update: Back In Business

    China is transitioning from an imbalanced, supply-side recovery to a more broad-based upswing as consumption and private-sector investment finally join the party. But policy is also normalizing quickly, creating challenges for property and equity markets. In this regular chartbook, the Dragonomics team explains the outlook heading into 2021.

    0
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    Gavekal Dragonomics

    Banks Will Digest The Hit To Earnings

    The pandemic economy has not been very good for China’s banks, with net profits plunging an unprecedented 24% in Q2 as the government pressured them to sacrifice profits. In this piece, Xiaoxi explains why things are not actually so bad: bank profits have been hurt mainly by aggressive provisioning requirements, which are likely to ease in 2021.

    0
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    Gavekal Dragonomics

    The World’s Best Manufacturer

    The strong performance of China’s manufacturing sector reflects both the country’s success in getting the virus under control as well as its long-established manufacturing strengths. In this report, Dan explains why multinationals are reluctant to leave a country they’ve built up to be the world’s best manufacturer.

    3
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    Gavekal Research

    Different Strokes For Different EM Folks

    Last spring, key beneficiaries of the rich world’s fiscal and monetary largesse were emerging market economies, which enjoyed unprecedented policy flexibility that gave broad-based, if not universal, financial relief. The next turn in this crisis is, however, unlikely to float as many boats, as shown by divergent inflationary trends across EM economies.

    0
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    Gavekal Dragonomics

    A Return To Normality

    China’s recovery story continues apace, with strong showings in exports, retail sales and manufacturing counteracting a softening in the property sector. In this Quick Take, the Dragonomics team explains why Beijing is therefore unlikely to conduct further policy easing or support major infrastructure investment for the rest of the year.

    0
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    Gavekal Research

    Webinar: Understanding Chinese State Capitalism

    The advance of the private sector and the retreat of the state sector has been central to China’s long transformation from an isolated socialist nation to a globally connected economy. Yet the notions of China’s private sector being either in the ascendency, or facing a squeeze in the statist Xi Jinping era are not born out by the facts. Andrew Batson discussed the findings in his recent major piece of research on this topic.

    0
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    Gavekal Dragonomics

    Funding The Future

    China has seen a surge in funding to “strategic” high-tech industries following US attempts to strangle Chinese technological development. What’s surprising, Thomas writes, is that this funding is coming not from public subsidies but rather from capital markets, with the firms leveraging government support to raise equity and secure financing.

    0
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    Gavekal Research

    The Three Key Prices: Oil

    In financial markets, there are three prices matter above all: the price of the US dollar, the yield on 10-year US treasuries, and the price of oil. Get the direction of these right, and the other pieces of the investment puzzle fall into place. In the first of a three-part series, Louis examines in depth what could cause the oil price to break out of its current trading range.

    6
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    New Tech, Same Fiat Money (For Now)

    This week saw seven western central banks and the Bank for International Settlements issue a joint report on central bank digital currencies. They come not to bury cash nor to undermine banks, but to modernize payments for a digital age. If so, the introduction of CBDCs is unlikely to upend the banking system and monetary policy, but would resemble the rollout of ATMs in the 1960s.

    2
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    A Typology Of Bear Markets Based On Wicksellian Analysis

    In half a century of doing financial analysis, Charles has acquired the core conviction that there is not one type of bear market, but two. Think of these as the gentle black bear-type downturn that is survivable and the highly-dangerous, big brown grizzly collapse that for many money managers proves fatal. In this piece, Charles seeks to map this insight with some analytical rigor.

    7
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    Keeping It Super Simple

    Let me start with President Donald Trump’s policies as I understand them. As a businessman, since taking office in 2017 his singular goal has been to keep US firms’ return on invested capital as high as possible. So, if Trump is reelected on November 3, I would expect more of the same. In contrast, a Joe Biden win would lower ROIC and cause the US dollar to fall against the euro.

    0
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    Gavekal Dragonomics

    What The Holiday Means For Consumption

    Tourism over China's weeklong National Day holiday disappointed, with tourism revenues down 30% YoY. In this Quick Take, Ernan writes that Chinese consumers still seem concerned about long-distance travel, and are instead spending their money locally; however, the overall recovery in consumer spending is still continuing apace.

    1
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    Webinar: Global Investment Roundtable, October 2020

    Yanmei Xie discussed the US team’s assessment of risks surrounding the US election, Anatole Kaletsky explained the reasons for his return to bullishness and Louis Gave talked about global asset allocation and how to find “anti-fragile” assets.

    0
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    Gavekal Dragonomics

    The Phantom Mechanism

    In late July, Beijing declared that a trial “long-term mechanism” for regulating real estate had achieved “significant results” despite having never been properly defined. Rosealea posits that the mechanism is a combination of smaller reforms implemented in recent years, concluding that major policy changes are therefore unlikely for now.

    1
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    Flows Favor The Renminbi

    China’s renminbi has been appreciating in recent months, driven by heavy inflows into the onshore bond market and declining concerns about US-China tensions. The biggest risk to continued renminbi strength is the possibility that an election victory for Donald Trump sparks fears of a renewed US-China tariff war.

    0
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    Gavekal Dragonomics

    The State Never Retreats

    The retreat of the state from the command of China’s economy has been greatly exaggerated. In this 25-page DeepChina report, Andrew uses new estimates of SOEs’ share of GDP to show how little has changed in the state’s role in the economy in the past two decades, and explains how that stability has affected China and the rest of the world.

    2
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    Webinar: Europe In The Second Wave

    Yesterday Cedric Gemehl, Nick Andrews and Anatole Kaletsky joined Tom Holland to discuss what's going on in Europe. Topics ranged from how the economy is fairing in the second wave of the outbreak, what that means for asset prices, and also where Brexit fits into all this.

    0
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    Gavekal Dragonomics

    The Evergrande Effect

    After a turbulent several days, on Tuesday China Evergrande Group averted a cash crunch that would have reverberated throughout China’s financial markets. In this Quick Take, Rosealea explains why Evergrande’s liquidity troubles are emblematic of the wider issues facing developers following China’s ongoing financing squeeze.

    0
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    China’s Belt And Road Looks To Bounce Back

    Even before the pandemic, it had become a common refrain to write off the Belt and Road Initiative. After foreign loans and construction peaked in 2017, China’s global infrastructure powerplay lost momentum. US-led criticism of Beijing’s “debt trap diplomacy” spread anxiety, forcing Xi Jinping to pledge reform. Then, when Covid struck, hundreds of BRI projects ground to a halt. However, Tom argues that it is too soon to dismiss the initiative:...

    0
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    Gavekal Dragonomics

    Another Strike Against Semiconductors

    US companies will now have to apply for licenses to sell certain technologies to Semiconductor Manufacturing International Corp., China’s leading chipmaker. In this Quick Take, Dan outlines what this means for SMIC and why it is too early to write the firm off completely. The move also increases the risk of Chinese retaliation against US firms.

    3
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    Webinar: Taking Stock Of US-China Decoupling

    In yesterday’s webinar, Andrew Batson presented an overview of where the Chinese economy is going and how the relationship with the US is evolving, and Dan Wang addressed recent US actions in the technological rivalry between the two countries, particularly the latest executive orders on WeChat and TikTok.

    0
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    Gavekal Dragonomics

    The China Inc. Annual Report 2020

    After a historically disastrous quarter, Chinese companies are now enjoying a V-shaped rebound—but what is driving this bounce, and how sustainable is it? In his annual chartbook, Thomas answers these and other questions, dissecting the impact of Covid-19 on China’s corporate sector across sales, margins, profits, cashflow, capex and leverage.

    0
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    Caution Prevails In US Attack On Apps

    Last month President Trump issued orders that threatened massive disruption to two of China’s biggest technology companies. But the Commerce Department’s final decision on WeChat was less extreme than feared, and Trump’s blessing of a deal to avert a ban on TikTok signals a promising shift in the political calculus.

    4
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    Asia’s Winners In The US-China Tech War

    The US government has stepped up its campaign against China’s leading technology companies, and already the measures against Huawei are taking effect. This threatens to severely disrupt global electronics supply chains, but creates opportunities for companies elsewhere in Asia. Vincent assesses who stands to benefit.

    1
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    Gavekal Dragonomics

    Risks To The Consumer Recovery

    Consumer spending in China looks to be firmly on a recovering track, with Covid-19 under control and the job market improving. But the shock to household income in the first half of 2020 could still linger over spending for a while. In this piece, Wei explains what could keep consumption from quickly regaining previous growth rates.

    0
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    The Challenge Of Valuing Gold

    Gold ranks as the ultimate “scarcity asset”, as its value is dictated not by its utility but because it is rare. Valuing such assets is tough as there is no “underlying value” to reference and prices are driven by the immediate supply and demand situation. Yet, in periods when both government budget deficits and monetary aggregates have rapidly grown, gold has historically outperformed—and it is doing so now.

    0
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    When Export Strength Is A Sign Of Weakness

    China’s manufacturers are back to normal, and then some. Exports and manufacturing output are running faster than their pre-pandemic trend in 2019, even as global trade is contracting. In this piece, Andrew and Thomas explain what’s driving those strong numbers, and why they are actually a sign of continued weakness in the global economy.

    2
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    Gavekal Dragonomics

    A Booming Recovery

    China’s economic recovery continues to boom ahead, with retail sales turning positive and exports continuing to outperform. In this Quick Take, Thomas, Rosealea and Wei explain why this momentum is likely to continue for several more months but might dampen towards the end of the year as credit tightens and the property market is reined in.

    7
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    Of Gold And Gold Miners

    In recent weeks, attention has focused on the surge, and subsequent correction, in US technology stocks. Yet an asset class that has greatly outperformed the Nasdaq 100 this year is gold-mining equities. In this piece, Charles seeks to develop firmer investment rules for managing gold and gold-mining stocks within a portfolio.

    3
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    Gavekal Dragonomics

    Red Lines For Real Estate

    China’s central bank and housing ministry are putting together new restrictions on the leverage of major real-estate developers by drawing three “red lines” for the firms. In this report, Rosealea explains why regulators are targeting individual developers, as well as why she feels these red lines will have limited macro impact.

    2
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    Webinar: From Bearish To (Conditionally) Bullish

    Anatole and Will presented their views on the efficacy of US fiscal and monetary policy in response to the Covid crisis, and outlined the prospects for the economy and asset markets.

    0
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    Pained Tales From The Hills

    On Monday, for the first time since 1975, gunshots were fired on the disputed Himalayan border between India and China.Hundreds of incidents occur along the undemarcated Line of Actual Control every year, but this year’s skirmishes are the most dangerous for at least five decades.

    0
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    Gavekal Dragonomics

    The Open-Source Moment Arrives

    Most of the US government’s efforts to hinder China’s technological progress have focused on hardware, mainly semiconductors. But software is also now a front in the US-China tech conflict. As Dan explains in this piece, those tensions could make open-source software, which is free from most legal restrictions, even more globally important.

    0
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    Webinar: Global Investment Roundtable (in French), Sept 2020

    In a turbulent economic environment, Louis sought to identify assets with “anti-fragile” qualities; Cedric deciphered the message from European markets; Didier Darcet refreshed refresh an old Gavekal framework with “Four Quadrants 2.0” and Charles moderated the discussion.

    0
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    Victory Over The Virus

    With no new domestic cases in almost a month, Xi Jinping effectively declared victory on Tuesday in the struggle against Covid-19. In this Quick Take, Gilliam explains how China’s post-Covid landscape is shaping up for consumer services, and why Beijing is unlikely to open up internationally any time soon.

    0
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    Desperately Seeking Anti-Fragility (Part II): In The Eye Of The Beholder

    Previously, Louis outlined the four asset classes that investors appear to regard as anti-fragile, now that US treasuries no longer fit the bill. With each of these four asset classes enjoying a roaring bull-run, today Louis examines the typical life cycle that lifts an asset class from unloved hell to anti-fragile heaven.

    1
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    Webinar: Global Investment Roundtable, September 2020

    Charles Gave, Louis Gave and Will Denyer joined Arthur Kroeber at the global investment roundtable to discuss what's going on in the global economy. Charles identified three big trends that will affect the investment environment in the long term, Will gave an in-dept update on the US economy, and Louis examined where to find assets with “anti-fragile” properties.

    0
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    Gavekal Dragonomics

    Restraint And Retaliation

    As the US government has rolled out ever more actions targeting Chinese firms, China has exercised restraint and has mostly opted not to retaliate in kind. As Dan explains, the government is taking the long view on the economy rather than pandering to nationalist outrage. But China is also developing legal tools that could be used to hurt US firms.

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