Gavekal Research

Louis Gave

Feb 28th 2020

Just a week ago, the S&P 500, Nikkei 225 and Eurostoxx 50 were all looking healthy. But over the past week, every major market has fallen by anywhere from -6% to -12%. This is highly unusual. The S&P 500 has only fallen by -10% or more four times in its post-1945 history. Each of these drops ended up having hugely important investment ramifications.

Gavekal Dragonomics

Wei He

Feb 27th 2020

As size of China’s growth shock from the coronavirus shutdown becomes clear, yet another infrastructure stimulus looks to be on the way. In this piece, Wei assesses the scale of the possible boost. The most likely outcome is that public-works spending accelerates to 8-9% in 2020 from just 3.3%, a nice boost but still well below historical peaks.

Gavekal Dragonomics

Thomas Gatley

Feb 25th 2020

The shutdown of normal economic activity during the coronavirus outbreak is going to mean a huge hit to corporate cashflow in Q1. In this piece, Thomas outlines the difficult road ahead for Chinese firms: many will have no choice but to default on cash obligations to staff, banks and suppliers, as well as curtail their capex plans for the year.

Gavekal Research

Andrew Batson

Feb 24th 2020

Asian markets switched to risk-off mode Monday as investors reacted to further coronavirus news outside of China. Yet in onshore markets, investors are optimistic that the economy will quickly normalize as the spread of the virus comes under control, and that the central bank will provide policy easing. Neither belief looks well-founded at the moment.

Gavekal Dragonomics

Lance Noble

Feb 19th 2020

The coronavirus outbreak has undoubtedly had a significant impact on multinational companies’ operations in China. Nonetheless, drawing from a dozen interviews with China-based executives, Lance argues there is little evidence the outbreak will cause firms to rethink their long-term China strategies.

Gavekal Dragonomics

Dan Wang

Feb 18th 2020

Chinese electronics manufacturers are struggling to get their operations back to normal amidst the coronavirus outbreak. Dan outlines how this might lead to larger disruptions in the tightly scheduled mobile phone production cycle, and why smaller companies are more likely to postpone launching new products than their larger counterparts.

Gavekal Research

Andrew Batson

Feb 17th 2020

China’s government was slow off the mark in responding to the initial outbreak of the new coronavirus. Although the government is now fully mobilized to fight the outbreak, it risks falling behind the curve again—this time in responding to the economic damage wrought by its extended shutdown of normal life and business activity.

Gavekal Dragonomics

Thomas Gatley, Ernan Cui, Dan Wang

Feb 13th 2020

The government’s drastic measures to contain the coronavirus are certain to deliver major blows to the auto and smartphone markets. Fortunately, Thomas, Ernan and Dan report that a V-shaped recovery is the most likely scenario for both sectors. Neither will meet pre-virus growth expectations, but both will likely still see an improvement from 2019.

Gavekal Research

Andrew Batson, Ernan Cui

Feb 11th 2020

China’s businesses are starting to get back to work, but the economy is still very far from normal. On Monday, the extended holiday declared by the government to help contain the coronavirus outbreak came to an end (except in Hubei province). But most businesses still face great difficulty in resuming their normal activities.

Gavekal Research

Arthur Kroeber, Tom Holland, Vincent Tsui

Feb 07th 2020

In yesterday’s research call, Vincent Tsui and Tom Holland joined Arthur Kroeber to discuss the coronavirus outbreak, what it means for Chinese and regional economic growth, and how investors should position themselves during this period of rapid news flow and high market volatility.

Gavekal Research

Tom Holland

Feb 06th 2020

No financial market has been hit more heavily by the Wuhan coronavirus than oil, with the price of crude falling by more than -20% from its early-January high on fears the outbreak will crush China’s demand for fuels. In this short video, Tom examines the global implications of the oil price slide, and asks “where next?” for the price of the world’s key commodity.

Gavekal Research

Didier Darcet

Feb 05th 2020

There is now enough data on the spread of Covid-19 to permit a useful quantitative analysis of its likely evolution. In this paper, Didier notes that while the spread of the virus continues to accelerate, the “jolt” of that acceleration is now slowing. This suggests the outbreak is likely to peak by early March.

Gavekal Dragonomics

Arthur Kroeber

Feb 04th 2020

There is now enough information available to begin to make useful judgments about both the short term and long term impact of the Covid-19 outbreak. In this extensive analysis, Arthur examines the health risks posed by the virus, its economic impact, and likely political fallout.

Gavekal Dragonomics

Dan Wang

Jan 30th 2020

American attempts to kneecap Huawei have run into several setbacks. Internationally, Europe is pushing back on demands to exclude Huawei from 5G networks; domestically, further sanctions have been stymied by bureaucratic infighting. Dan reports that the war is hardly over, and we are likely to see broader rules limiting Chinese access to US tech.

Gavekal Research

Louis Gave

Jan 27th 2020

It is unlikely Xi Jinping has spent much time studying Christian eschatology. But if he has, the Chinese president might be forgiven for thinking that after (trade) war, conquest (in Hong Kong) and famine (African swine fever), he now has to deal with the fourth horseman of the Apocalypse: Death (in the unwelcome shape of the Wuhan coronavirus).

Gavekal Dragonomics

Thomas Gatley

Jan 23rd 2020

Although the Wuhan coronavirus has the potential to whipsaw Chinese equities in the near term, it makes sense to assess the prospects for China’s A-share market this year should the current nervousness quickly abate. Thomas argues that market sentiment is likely to turn favorable provided the virus is contained given the trade war truce, easing deflationary pressure and a profit cycle upturn.

Gavekal Research

Tom Holland

Jan 22nd 2020

Beijing shops have sold out of high-spec surgical masks, scared customers are stockpiling medicines, and financial markets are looking shaky. The parallels between the current coronavirus outbreak and the 2003 epidemic of Sars are obvious. But there are also important differences, especially in the backdrop against which today’s outbreak is occurring.

Gavekal Dragonomics

Andrew Batson

Jan 18th 2020

China’s government has done its part to steady the economy and markets: it has agreed to a rather one-sided trade deal with the US, and softened the tone of its financial de-risking campaign. But December’s data show that good luck has mattered more: turns in the autos and electronics cycles are what’s really behind the stabilization of growth.

Gavekal Research

Arthur Kroeber, Dan Wang

Jan 16th 2020

The story we’ve been telling for the past few months is that the conclusion of the US-China trade deal will reduce global macro risk in 2020, but tech-specific risk will still be an issue because of continued efforts by the US to constrain the rise of China’s technology sector and in particular Huawei. This week’s news buttressed that story: the trade deal was signed; but at the same time several US agencies are on the verge of tightening...

Gavekal Dragonomics

Lance Noble

Jan 13th 2020

Although US President Donald Trump has called a truce in his trade war with China, the strategic tensions in the US-China relationship still remain. Therefore, as Lance explains in this piece, the US defense sector is already taking concrete steps to reduce its reliance on China for some products with direct military applications.

Gavekal Research

Anatole Kaletsky

Jan 09th 2020

With interest rates low, and growth that is neither too hot nor too cold, Anatole remains firmly in the “Goldilocks lives on” camp. But while a continued bull run is the most probable outcome for 2020, bears still lurk in the shadows. In this paper Anatole identifies the 10 main macroeconomic, political and sector risks that could derail markets in 2020.

Gavekal Research

Andrew Batson

Jan 07th 2020

In 2019, investors were cowed by the US-China trade war and Chinese policymakers’ efforts to balance growth and financial stability. This year, these factors will weigh less heavily: the US and China are set to ink a trade deal, while China is shifting more toward growth-supporting policies. Such a combination is mildly bullish for both Chinese bonds and equities.

Gavekal Research

Louis Gave

Dec 27th 2019

As the year draws to a close, Louis has decided to review the key events of 2019 that he either didn’t see coming, or whose ramifications he under estimated. Such events could cast a long shadow in the coming quarters as their impact on markets may not yet be fully digested.

Gavekal Research

Louis Gave

Dec 18th 2019

Back in October, when the Fed said it would start expanding its balance sheet at the same time as the ECB and BoJ, Louis reasoned that powerful forces were aligning for a global reflation trade. A little over two months later, markets have ripped higher, but the reflation trade has not materialized quite as anticipated. In this paper, Louis examines why not, and asks what conditions will be needed for it to come good in 2020.

Gavekal Research

Arthur Kroeber

Dec 16th 2019

The “phase one” US-China trade deal announced last week still has some hoops to pass through before it becomes real: completion of a bilingual legal text and formal signing in January. Still, both sides have incentives to avoid the economic damage from further tariff escalation, so the deal will almost surely come into force. The agreement falls far short of achieving the US goal of forcing China to change its state-led economic system; instead...

Gavekal Research

Research Team

Dec 13th 2019

“So many books,” lamented the late Frank Zappa, “so little time.” For readers wondering which of the 130mn books published since the invention of the printing press they should curl up with over the coming break, hopefully Gavekal’s annual holiday reading picks may help.

Gavekal Dragonomics

Thomas Gatley

Dec 10th 2019

The multi-year liquidity squeeze for Chinese private-sector firms continues, despite repeated promises from policymakers to resolve the issue. In this report, Thomas explains how Beijing’s tight grip on financial risk has stymied efforts to alleviate China’s beleaguered private sector—and why this lending crunch will persist through 2020.

Gavekal Research

Louis Gave

Dec 05th 2019

Who would have thought at the time of the September attacks on Saudi that the oil sector would perform so dismally in the weeks after? This has been in line with a longer term underperformance, which has led many investors to dismiss the energy sector as uninvestible. Louis examines some of the arguments underlying this belief, and comes to an intriguing conclusion.

Gavekal Dragonomics

Rosealea Yao

Dec 03rd 2019

A slew of new government policies has boosted market expectations for China’s infrastructure spending in 2020. But Rosealea counsels caution: while new measures have opened the “front door” of approved funding a bit wider, more important is that the “back door” of shadow financing remains firmly closed. A big rebound in public works is unlikely.

Gavekal Research

Charles Gave, Will Denyer, Tom Miller, Anatole Kaletsky, Udith Sikand, Arthur Kroeber

Nov 28th 2019

Partners and analysts present their core ideas for the big economic regions and global markets heading into the year-end and looking forward to 2020.

Gavekal Dragonomics

Ernan Cui

Nov 25th 2019

In her annual review of the Chinese consumer, Ernan analyzes the trajectory of household spending and unearths thematic opportunities in consumer markets. After 2019’s slowdown, consumption should stabilize in 2020 as the labor market improves. Luxury goods and cosmetics are booming, but overseas tourism and traditional retail are weaker.

Gavekal Dragonomics

Rosealea Yao

Nov 21st 2019

China’s financial regulators are squeezing funding for property developers in order to discourage land speculation and cool down property prices. In this piece, Rosealea argues the crackdown has been fairly successful, and does not pose a big risk to construction. Slightly easier demand-side policies will help offset tough supply-side restrictions.

Gavekal Research

Louis Gave

Nov 21st 2019

Recent weeks have seen a turn in the investment environment, with global equities outperforming those in the US, cyclicals outperforming growth stocks, a steepening US yield curve and a stall in the US dollar’s rally. Louis recently met with a lot of US clients and outlined his explanation for these shifts. He got some push-back and this report is the product of those deliberations.

Gavekal Research

Louis Gave

Nov 19th 2019

We live in the 21st century, and if a liquidity injection program by the Federal Reserve doesn’t want to identify as quantitative easing, then we should respect that choice, and call it by whatever name it chooses for itself—even if almost everyone now calls the US$60bn injection “non-QE QE”. However, lost within the debate over naming lies a long list of interesting “firsts”.

Gavekal Dragonomics

Lance Noble

Nov 18th 2019

Europe’s leaders are promising a more forceful approach to defending the bloc’s interests. But they do not fully subscribe to the view, widely held in the US, that China is a strategic rival and security threat. What they have been able to agree on, as Lance argues, is the need to protect the EU’s single market against Chinese state capitalism.

Gavekal Research

Simon Pritchard

Nov 13th 2019

Public support for Hong Kong's protest movement has been re-energized by perceived police brutality, the local government offering no political response to the crisis and Mainland authorities delivering mixed, but slightly sinister messages about their next move. This piece assesses the political forces at play and takes a stab at explaining what comes next.

Gavekal Research

Louis Gave

Nov 12th 2019

When I wrote on the Hong Kong dollar peg back in May, there was no inkling that trust between the police and much of Hong Kong’s population would fully break down. Today, Hong Kongers are saying: “We don’t trust the police to do the right thing, or even speak the truth”. This situation causes many clients to ask: "Why has the peg not broken down?"

Gavekal Dragonomics

Thomas Gatley

Nov 07th 2019

China’s industrial slowdown is not just about exports. The deep downturn in auto sales accounts for about half of the slowdown in GDP growth since 2018, Thomas estimates. Things are now starting to look less bad, and the growth drag is heading back toward zero. But autos are still not about to deliver a big boost to growth or commodity demand.

Gavekal Research

Louis Gave

Nov 05th 2019

From Hong Kong to Santiago to Paris, this year has seen protestors rage against out-of-touch political elites. But does anything more than anger connect these apparently disparate movements? Louis argues that the upheavals posed by the ongoing “knowledge revolution” may explain the phenomenon, and offers investment advice on how to survive revolutionary times.

Gavekal Research

Anatole Kaletsky

Nov 04th 2019

In recent months, economic data has improved or stabilized, and political risks have receded. But now that equity prices on Wall Street have hit new records and US treasury yields have rebounded from the bottom of their post-2011 trading range, it is worth asking if the move to risk-on conditions is a temporary mood swing, or one supported by economic fundamentals.

Gavekal Dragonomics

Rosealea Yao

Oct 30th 2019

China’s property market has held up surprisingly well in 2019, but will that strength last? In her annual chartbook, Rosealea examines key market trends and explains the outlook for 2020. Flexible policy can probably continue to avoid a deep decline in housing sales, but construction activity and materials demand are almost certain to slow.

Gavekal Research

Arthur Kroeber

Oct 28th 2019

Signs are growing that the US and China will have a mini-deal on trade ready by the time Trump and Xi meet at the mid-November APEC summit. The key questions are whether opposition from US hardliners could derail the deal at the last moment, and whether the campaign to “decouple” the two economies will be knocked back if there is a deal.

Gavekal Research

Andrew Batson

Oct 21st 2019

China’s recent economic figures do not paint a bright picture. Yet some of the problems weighing on growth are moving closer to resolution. So how much of a bounce in the data can we expect from these positive developments? Three possible sources of good news can help answer this question: exports, domestic investment and autos.

Gavekal Research

Charles Gave

Oct 17th 2019

Some time ago, I had gathered a team in Paris to develop a new venture that would apply macro research analysis to portfolio construction in a systematic way. Things are progressing well and I wanted to update readers on the initiative. The common thread is a rejection of forecasting and a reliance on market prices and economic data.

Gavekal Research

Louis Gave

Oct 16th 2019

It is a Gavekal adage that 10-year treasury yields, crude oil prices and the US dollar exchange rate are “master prices” that have an outsized impact on economic activity and financial markets. Yet as Louis notes, in recent years, these three prices have shown little by way of a structural trend. In this piece, he seeks to understand the meaning from this range-trading phenomenon.

Gavekal Research

Vincent Tsui, Udith Sikand, Tom Miller, Arthur Kroeber

Oct 11th 2019

Vincent outlined EM Asia's "great moderation", as inflation is diverging from other emerging markets, creating opportunities in bonds. Udith argued that Indian growth may be bottoming out but a bad banking picture means that equities may have more downside. Tom addressed the remaking of Asian supply chains in light of the US-China trade war.

Gavekal Dragonomics

Tom Miller

Oct 08th 2019

China is still signing up more countries for its Belt and Road Initiative, but money for Xi Jinping’s signature foreign policy is getting tighter. Growth in China’s overseas lending has ground to a halt, and overseas construction projects are declining. In this piece, Tom explains why a slimmer Belt and Road has become an economic necessity.

Gavekal Dragonomics

Thomas Gatley

Oct 03rd 2019

In the latest edition of his annual chartbook, Thomas outlines the fundamentals of China’s corporate sector. The latest downcycle in sales and profits was less severe than previous episodes, but private firms are still suffering from financial strains. The anemic bounce in credit growth points to little recovery in profits or capex in 2020.

Gavekal Research

Vincent Tsui, Udith Sikand

Oct 02nd 2019

Asian inflation has decoupled from other emerging market regions and may be settling at a new permanently lower level. At the same time, lower Asian inflation also reflects weak capital spending and slower economic growth due to the global trade downturn. The best way to play this new low-inflation, low-growth era is with regional bonds.