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Gavekal Research
Wei He
Oct 05th 2020
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.
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Gavekal Research
Cedric Gemehl, Nick Andrews, Anatole Kaletsky
Oct 01st 2020
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.
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Gavekal Dragonomics
Andrew Batson
Oct 01st 2020
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.
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Gavekal Dragonomics
Rosealea Yao
Sep 30th 2020
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.
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Gavekal Research
Tom Miller
Sep 29th 2020
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:...
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Gavekal Dragonomics
Dan Wang
Sep 28th 2020
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.
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Gavekal Research
Andrew Batson, Dan Wang
Sep 24th 2020
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.
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Gavekal Dragonomics
Thomas Gatley
Sep 24th 2020
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.
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Gavekal Research
Dan Wang
Sep 21st 2020
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.
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Gavekal Research
Vincent Tsui
Sep 18th 2020
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.
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Gavekal Dragonomics
Wei He
Sep 17th 2020
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.
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Gavekal Research
Charles Gave, Louis Gave
Sep 16th 2020
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.
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Gavekal Research
Andrew Batson, Thomas Gatley
Sep 16th 2020
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.
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Gavekal Dragonomics
Thomas Gatley, Rosealea Yao, Wei He
Sep 15th 2020
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.
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Gavekal Research
Charles Gave
Sep 11th 2020
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.
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Gavekal Dragonomics
Rosealea Yao
Sep 11th 2020
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.
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Gavekal Research
Will Denyer, Anatole Kaletsky
Sep 11th 2020
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.
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Gavekal Research
Tom Miller, Udith Sikand
Sep 10th 2020
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.
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Gavekal Dragonomics
Dan Wang
Sep 09th 2020
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.
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Gavekal Research
Charles Gave, Louis Gave, Cedric Gemehl, Didier Darcet
Sep 09th 2020
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.
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Gavekal Dragonomics
Gilliam Collinsworth Hamilton
Sep 08th 2020
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.
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Gavekal Research
Louis Gave
Sep 08th 2020
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.
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Gavekal Research
Charles Gave, Louis Gave, Will Denyer
Sep 04th 2020
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.
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Gavekal Dragonomics
Dan Wang
Sep 03rd 2020
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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Gavekal Research
Anatole Kaletsky
Sep 03rd 2020
Why I Was Right To Turn Bullish
Previously, Anatole tried to explain why he had abandoned the bearish view on equities. We will not know for a long time whether any of his explanations make sense, but Jerome Powell’s speech about the Federal Reserve’s new operating philosophy bolstered his confidence in a once-in-a-generation economic regime change.
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Gavekal Research
Charles Gave, Louis Gave
Sep 03rd 2020
Strategy Monthly: Eight Questions, 11 Answers
With US equities once again at record highs and the Fed promising to keep rates nailed to the floor, it is time to ask hard questions of the bull market that won’t die. That interrogation is conducted by Charles and Louis Gave. In these strange times, the case for owning anti-fragile assets has rarely been stronger, they contend. Four stand out for having weathered the pandemic and should be treated seriously.
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Gavekal Dragonomics
Wei He
Aug 31st 2020
The Experiment With Sectoral Monetary Policy
Central banks usually concern themselves with the economy in the aggregate. The People’s Bank of China is now experimenting with a disaggregated approach, minimizing changes in overall policy and instead directing the flow of credit to specific sectors. In this piece, Wei considers whether this experiment can work, and where rates are headed.
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Gavekal Dragonomics
Thomas Gatley
Aug 28th 2020
An Acceptable Amount Of Chaos
The first batch of 18 firms on Shenzhen’s tech-oriented ChiNext board under new registration-based IPO regulations exhibited exceptional levels of price volatility this week after their Monday debut. In this Quick Take, Thomas explains why this volatility is to be expected in Chinese equities and might even be an improvement on the status quo.
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Gavekal Dragonomics
Andrew Batson, Dan Wang
Aug 27th 2020
The Dimensions Of Decoupling In 2020
The “decoupling” of the US and Chinese economies that began with a trade war has now spread to almost all aspects of the relationship, with the Covid-19 pandemic accelerating the process. In this chartbook, Andrew and Dan show what decoupling looks like so far in 2020, using data on flows of trade, investment, technology, finance and people.
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Gavekal Dragonomics
Gilliam Collinsworth Hamilton
Aug 25th 2020
Understanding Dual Circulation
Top leader Xi Jinping is now promoting a new slogan—dubbed “dual circulation”—to manage China's significant dependencies on the global economy. In this report, Gilliam explains how this does not mean the country is turning inward, but rather trying to gain more control over its long-term growth without losing its role as an international hub.
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Gavekal Dragonomics
Dan Wang
Aug 21st 2020
Climbing Up The Smartphone Smiling Curve
Chinese advances in hardware technology have increased the country’s contribution to the global smartphone supply chain. In this report, Dan explains how Chinese firms have increased their value-added in both innovation and branding. Now, he suggests, the main headwinds for Chinese smartphones are no longer technological, but geopolitical.
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Gavekal Dragonomics
Thomas Gatley
Aug 20th 2020
Headwinds Build For Equities
Chinese equities tapped on their ceiling this week but have been unable to break through, despite both surprisingly positive economic data and rebounding corporate earnings. In this piece, Thomas explains how increasingly adverse liquidity conditions are keeping a downward pressure on the markets which is unlikely to lift in the short term.
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Gavekal Research
Dan Wang
Aug 18th 2020
A Death Sentence For Huawei
The US government has passed a death sentence on Huawei. The questions now are whether it will choose to suspend that sentence, and whether China will retaliate by punishing major US companies. The likely answers, says Dan, are no and no. Huawei is probably finished as a maker of 5G network equipment and smartphones once its inventories run out early next year.
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Gavekal Dragonomics
Xiaoxi Zhang
Aug 17th 2020
Don’t Call It A Bailout
China’s government is finally rolling out a plan to aid small banks, the weakest links in the nation’s financial system. But don’t call it a bailout, Xiaoxi argues in this piece: while the government will replenish RMB200bn in capital, the money will mostly support relatively solid banks. The truly troubled banks will be shuttered or acquired.
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Gavekal Research
Louis Gave
Aug 14th 2020
Huawei And The Roads Of The Future
China is engaged in an imperial project that will not be typified by territorial conquest, but by “road building”. This is done to bring commodities to the heart of the empire at the cheapest cost, while higher value-added finished goods are pushed out to its outer realms. It is no coincidence that a common saying for Europeans is that “all roads lead to Rome’”.
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Gavekal Dragonomics
Thomas Gatley, Rosealea Yao, Wei He
Aug 14th 2020
Another Leg Up For Growth
After plateauing in Q2, China’s economic activity is stepping up in Q3, powered by demand in housing, infrastructure and exports, and a lessening drag in consumer services. In this Quick Take, Thomas, Rosealea and Wei explain how these factors will assist the country as it continues down its path back to economic normalcy.
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Gavekal Research
Charles Gave
Aug 12th 2020
Building A New System
On Monday, Charles argued that developed economies’ moves to nationalize both the creation of money and the distribution of credit would degrade the unit-of-account function played by fiat currencies in many markets. Today, he outlines new monetary mechanisms that are likely to replace, or at least live alongside, fiat currencies.
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Gavekal Research
Louis Gave
Aug 11th 2020
What US-China Decoupling Means For The US Dollar
Almost all of the world’s commodity trade is done in US dollars, so any commodity-importing country must keep much of its central-bank reserves in US currency. The fact that China, the world’s largest commodity importer, pays for these imports using another nation’s currency was an anomaly even when the US and China got along. As US hostility towards Beijing increases, this raises four possible scenarios.
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Gavekal Dragonomics
Arthur Kroeber
Aug 11th 2020
Hawks In The Driver’s Seat
The China hawks are at the wheel in the Trump administration and driving as fast as they can. In this report, Arthur outlines the many tactics being employed by hardliners in the White House to lock in an adversarial stance against China ahead of the US elections. However tense things have been so far, even tenser times lie ahead.
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Gavekal Dragonomics
Dan Wang
Aug 07th 2020
Taking On Tencent
President Donald Trump signed executive orders on Thursday imposing restrictions on Tencent and ByteDance, two of China’s biggest software giants. In this report, Dan explains how the broad language in the orders might end up blocking any US person or company from working with the firms, dealing a major blow to their operations.
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Gavekal Research
Louis Gave
Aug 07th 2020
How To Pay For Sin In The Future?
Just as success has many fathers, there are many possible explanations for the upside breakout in gold prices. Obvious explanations include a rapid rise in monetary aggregates across the OECD, the fall in the US dollar and growing US-China tensions. An overlooked explanation is the demise of physical cash as a liquid and easily transportable asset.
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Gavekal Research
Udith Sikand
Aug 06th 2020
Emerging Markets And The Dollar
A weakening US dollar is usually an unalloyed positive for emerging markets, so it is no surprise that their assets have rallied since the March 23 bottom in global markets—equities are up 45%, while bonds (both US dollar and local currency-based indexes) have gained 20%. Happy days indeed, but the next stage of the EM rally is likely to be more exacting for investors.
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Gavekal Dragonomics
Thomas Gatley
Aug 06th 2020
Leading The Way In Export Recovery
Chinese exports have outperformed expectations due to booming sales of goods related to Covid-19 and Chinese manufacturers staying open when their international counterparts were forced to suspend production. In this report, Thomas explains why China's export growth will continue to flatten in H2 as global trade catches up.
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Gavekal Research
Louis Gave
Aug 05th 2020
Tech As The Battlefield Of The Unfolding Cold War
Despite technology issues sitting at the heart of the great-power struggle between the US and China, tech stocks continue to brush off geopolitical tensions. Louis is concerned that the market's assumptions don't line up with reality on three counts. It all adds up to a bad brew for tech.
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Gavekal Dragonomics
Xiaoxi Zhang
Aug 05th 2020
Bringing Back Volatility
Cleaning up the messy world of wealth-management products is still a key mission in China’s financial de-risking campaign, even if the PBOC has now had to give banks another year to work on it. In this piece, Xiaoxi explains how the regulatory crackdown is pushing the risks hidden in WMPs out into the open, increasing market volatility.
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Gavekal Research
Dan Wang
Aug 04th 2020
The Assault On Chinese Tech
After a whirlwind of negotiations, the US government may have succeeded in forcing the sale of TikTok’s US operations to a US company. The US earlier used national-security grounds to restrict the business of Huawei. Both companies still have large domestic businesses, but US government actions over the past year may mark a peak for the global expansion by Chinese tech firms.
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Gavekal Research
Vincent Tsui
Jul 31st 2020
Not All Tech Markets Are Created Equal
Aided by lockdown effects, Big Tech has rolled out some stellar results. Self-isolating consumers have replaced devices and devoured cloud computing services, spurring a new upgrade cycle. Such demand has boosted Asia’s tech supply chain, but surging hardware demand is about to become more specific, with some segments facing excess supply and others sustained tightness.
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Gavekal Research
Anatole Kaletsky, Arthur Kroeber, Tan Kai Xian
Jul 31st 2020
Webinar: Global Investment Roundtable, July 2020
In our monthly Global Investment Roundtable, US analyst Tan Kai Xian analyzed the latest US data and assessed the risk that the present economic stall-out turns into a double-dip recession. Arthur Kroeber explained why the Trump Administration has amped up its Cold War rhetoric on China. Anatole Kaletsky tied it all together and tried to explain the recent movements in global markets.
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Gavekal Dragonomics
Xiaoxi Zhang, Wei He
Jul 30th 2020
Questions On The Digital Renminbi
The People’s Bank of China is on the way to becoming the first central bank in the world to launch a digital currency. The idea of a digital renminbi has sparked a huge amount of interest, but confusion and speculation are rampant. In this Q&A, Xiaoxi and Wei provide clear answers to some of the big questions about the digital currency.
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Gavekal Dragonomics
Rosealea Yao
Jul 29th 2020
Construction’s Surprising Resilience
After a robust recovery in construction following the Covid-19 lockdown, the big question now is whether this growth rate is sustainable. Using a rolling sum of construction starts, Rosealea posits that construction should slow only moderately in the second half, providing room for steel demand to continue growing for the rest of 2020.
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Gavekal Research
Dan Wang
Jul 29th 2020
Video: The Hong Kong Sanctions Regime
As US-China tensions amp up, Hong Kong faces US actions in response to the national security law imposed by the Chinese government. This includes an end to preferential trade treatment and penalties for foreign financial institutions that transact with officials found to be undermining the city’s freedoms. In this video interview, Dan explains how the program will play out and addresses the question of whether the US government will target Hong...
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Gavekal Dragonomics
Gilliam Collinsworth Hamilton
Jul 28th 2020
How To Contain A Lingering Virus
China is seeing its highest number of daily new locally transmitted Covid-19 cases since March, and government officials are rushing to contain the outbreak. In this Quick Take, Gilliam explains how China has developed a standard containment strategy to handle this and future outbreaks while minimizing economic damage.
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Gavekal Research
Arthur Kroeber
Jul 24th 2020
Edging Toward A New Cold War
The US decision to close China’s consulate in Houston is a big deal. The precise motivations are obscure but the story is not: the Trump Administration is turning up the heat on China before the US presidential election. In the next few months Washington is likely to make new moves pushing the US closer to a Cold War posture against China.
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Gavekal Dragonomics
Andrew Batson
Jul 24th 2020
Macro Update: The Supply-Side Recovery
China has rapidly bounced back from its Covid-19 lockdown, but the recovery has been an unbalanced one with supply outpacing demand. Economic policy has also turned more cautious amid exuberance in property and financial markets. In this regular chartbook, the Dragonomics team outlines how the next stage of China’s recovery will proceed.
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Gavekal Research
Anatole Kaletsky
Jul 23rd 2020
Do Bubbles Predict Or Project?
With the second quarter data season now in full swing, the rebound in equity prices that followed the Covid-19 panic seems to have stalled. So, what happens now? In this piece, Anatole follows up on Louis’s recent efforts to define reasons for the surge in equity values and proposes a fresh explanation centered on the nature of bubbles.
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Gavekal Dragonomics
Rosealea Yao
Jul 22nd 2020
The Marginal Impact Of Housing Renovation
The State Council recently announced a nationwide target to renovate 39,000 antiquated residential compounds in 2020, improving accommodation for 7mn total households. In this Quick Take, Rosealea explains how the target will provide space for local governments to further tighten property policy without upsetting China’s economic recovery.
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Gavekal Research
Louis Gave
Jul 21st 2020
The Consequences Of ‘Worthless Cash’
In the second quarter of this year, global equity markets registered their best quarterly performance in two decades. In this, the third paper of a series about the record-breaking rebound, I will consider the possibility that the present growth in monetary aggregates is leading investors to conclude that they have no alternative.
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Gavekal Dragonomics
Dan Wang
Jul 21st 2020
The Next Steps In US-China Decoupling
As the US election approaches, the Trump Administration is intensifying pressure on China on all fronts. In this report, Dan outlines the executive-branch agencies tasked with implementing sanctions and restrictions, what they have accomplished so far, and what tools are at their disposal should Trump decide to further escalate the situation.
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Gavekal Research
Charles Gave
Jul 21st 2020
Toward A Renminbi-Gold Standard
As the international trading and monetary order of the last 50 years continues to crumble, the endgame must be the US dollar losing its lofty position at the apex of the system. Louis and I have argued that this process began in and around 2005 as the US moved to “weaponize” the dollar, thereby ensuring the renminbi’s emergence as a competitor.
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Gavekal Research
Vincent Tsui
Jul 17th 2020
Unpicking The Tourism Effect
Despite a worsening Covid-19 situation in many big developing economies and concerns over central banks’ monetization responses, emerging market investors continue to climb the wall of worry, betting that a putative “second wave” does not stymie the recoveries of developed economies and China. But another challenge for EM economies is a collapse in foreign tourism.
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Gavekal Dragonomics
Thomas Gatley, Rosealea Yao, Wei He, Xiaoxi Zhang
Jul 16th 2020
The Recovery Tapers Off
Although Q2 GDP growth rebounded strongly after Q1’s significant contraction, sequential growth slowed considerably into June. In this Quick Take, Thomas, Rosealea, Wei and Xiaoxi report on why despite this latest rebound it will be difficult for the country to maintain its upward momentum as it moves into Q3.
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Gavekal Research
Vincent Tsui
Jul 16th 2020
Video: Singapore's Policy Path
Just days after securing another five years in power at the ballot box, Singapore’s government announced that the island republic’s gross domestic product contracted a worse-than-expected -12.6% year-on-year in the second quarter. However, with large accumulated fiscal reserves, the government has considerable scope to spend in order to stimulate Singapore’s economy.
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Gavekal Research
Tom Miller
Jul 15th 2020
Pick Your Side
The British government’s decision to block Huawei from the UK’s 5G mobile network, confirmed yesterday, is further evidence that the post-Covid world is splitting into two opposing security blocs. International distrust of China is hardening along ideological lines, spurring liberal nations to prioritize national security over economic growth.
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Gavekal Dragonomics
Dan Wang
Jul 14th 2020
A Bumpier Road To Semiconductor Supremacy
The Chinese semiconductor industry has made substantial progress over the last year, making credible gains in both design and production—despite attempts by the US to stymie China’s advancement. In this report, Dan explains how the US has escalated its anti-China campaign and outlines the rough road ahead for the industry.
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Gavekal Research
Tom Miller
Jul 14th 2020
India’s Pharma Problem
India, the world’s pharmacy, is in danger of running out of drugs. The source of the danger is India’s deteriorating relationship with China, which provides up to 70% of the bulk ingredients for India’s pharmaceutical industry. Most Indian pharma makers hold at least two months of stock, but if the situation is not resolved, the global pharma supply chain could be disrupted.
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Gavekal Research
Thomas Gatley, Wei He, Arthur Kroeber
Jul 14th 2020
Webinar: China's Capital And Bond Markets
On Tuesday morning Thomas Gatley and Wei He joined Arthur Kroeber to discuss the Chinese equity bull market and the major reversal in the bond market.
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Gavekal Dragonomics
Thomas Gatley
Jul 13th 2020
How To Burst A Bubble
Chinese equities surge ahead, and officials are worried that markets are coming dangerously close to resembling the dramatic boom and bust of 2015. In this report, Thomas makes the case that the current rally has no basis in fundamentals and outlines how regulators are trying to guide equities back to reality without causing a panic.
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Gavekal Research
Louis Gave
Jul 10th 2020
Have Equities Become A Bubble?
Two weeks ago, Louis proposed three possible explanations for the exceptional performance of equity markets in the second quarter, one of which was that investors have taken leave of their senses. In this, the second paper of a three-part series, Louis asks if equity markets are in a bubble. And if so—crucially—what sort of bubble is it?
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Gavekal Dragonomics
Wei He
Jul 09th 2020
The Monetary Policy Emergency Is Over
The Chinese government bond market has seen its biggest reversal in more than three years. Conflicting policy signals have made the priorities of China’s central bank difficult to decipher; in this report, Wei explains why it has now clearly returned to its “selective” easing mode of delivering targeted rather than broad-based economic support.
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Gavekal Dragonomics
Rosealea Yao
Jul 08th 2020
Local Support For Housing Is Peaking
National housing sales growth is likely to accelerate in June following May’s rebound on the back of supportive measures from local governments and easier access to credit. In this report, Rosealea outlines how the surge in sales might peak soon due to diminishing returns from local government stimulus as well as more cautious monetary easing.
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Gavekal Research
Louis Gave
Jul 07th 2020
Is This What Capital Flight Looks Like?
The bearish scenario for Hong Kong was that a combination of protests and Beijing’s heavy hand would trigger the flight of capital—financial and human—jeopardizing the peg and the financial system. Yet despite months of protests, and Beijing’s subsequent clampdown, the financial elements of this doomsday scenario have completely failed to materialize.
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Gavekal Research
Tom Miller
Jul 06th 2020
India Eyes Up Uncle Sam
After the border clash with Chinese troops on June 15, India is on the verge of a strategic reorientation towards the United States that will reshape security in Asia. A full formal military alliance with the US would be a red rag to the Chinese bull, and therefore remains unlikely. But India is set to deepen its strategic partnerships with the US and other like-minded countries, especially Japan and Australia. It will also weaken its ties with...
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Gavekal Research
Thomas Gatley
Jul 06th 2020
Behind The Bull Run In Chinese Stocks
Chinese equity markets are bounding higher on ebullient animal spirits. The CSI 300 index is up some 12.5% YTD in renminbi terms Monday morning. While the sequential rebound in profits from the first quarter’s dire situation has been heartening, the prospects for year-on-year earnings growth cannot justify this exuberance.
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Gavekal Research
Charles Gave
Jul 03rd 2020
An Upgrade For The Jeep Portfolio
In the Covid-19 crisis, Charles’s “Jeep” portfolio, introduced at the end of 2017 and expounded on in mid-2019, has amply demonstrated its worth, outperforming a pure equity portfolio, but with much lower volatility. In this paper, Charles reviews the Jeep portfolio once again, upgrading its components to navigate a post-Covid world.
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Gavekal Dragonomics
Yanmei Xie, Dan Wang
Jul 03rd 2020
Japan And Korea Split On China's Rise
Japan and South Korea have responded differently to China’s attempts to peel them away from the US. Japan continues to align closely with its ally, while South Korea is more ready to accept that China as the regional power. In this report, Yanmei and Dan explore the logic behind these decisions and what they mean for the regional power balance.
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Gavekal Dragonomics
Thomas Gatley
Jul 01st 2020
The Uneven Rebound In Consumption
The recovery of consumption in China is coming, but it will be an uneven one. In this piece, Thomas explains how the combination of recent negative surprises on public-health restrictions with positive surprises on jobs and income will shape the trajectories of different consumption categories, from food to autos to electronics.
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Gavekal Research
Vincent Tsui
Jul 01st 2020
Video: Singapore Beyond July's Election
Although a new opposition political party is making Singapore’s current election season somewhat more interesting than past campaigns, the outcome is not in doubt: the ruling People’s Action Party will be confirmed in power for another five-year term. In this short video interview, Vincent looks beyond the July 10 poll to survey the economic and market outlook for the island republic.
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Gavekal Research
Arthur Kroeber, Will Denyer, Louis Gave, Andrew Batson
Jun 30th 2020
Webinar: Global Investment Roundtable, June 2020
Yesterday Louis Gave, Will Denyer and Andrew Batson joined Arthur Kroeber at the Global Investment Roundtable. They discussed the economic growth and market situation in the US, the state of the Chinese recovery, and what a post-Covid-19 world might look like.
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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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Gavekal Dragonomics
Thomas Gatley
Jun 08th 2020
US Politics Versus Chinese Stocks
Financial markets are the latest field in which US-China political tensions are playing out. Thomas describes two lines of attack US hawks are pursuing against China: blocking Chinese firms from US equity markets and pressuring US asset managers to avoid Chinese equities. The risk associated with Chinese stocks has therefore materially increased.
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Gavekal Dragonomics
Dan Wang
Jun 05th 2020
A Charm Offensive For Supply Chains
As multinationals in China face growing pressure to shift their supply chains elsewhere, China’s government is doing everything it can to hold on to them. As Dan explains in this piece, China’s ability to get businesses back on their feet after the Covid-19 lockdown is a great advertisement for its attractiveness as a place to do businesses.
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