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Gavekal Research
Pierre Gave
Jul 03rd 2014
Growth & Markets Monthly (July 2014)
Having watched our growth indicators soften over recent months, we are now witnessing a momentum shift since our economic activity indicators have perked up markedly. Moreover, the velocity of money has risen rapidly, while our price indicators continue to show lessening deflationary pressure. Hence, it was not surprising to see that bonds are getting more expensive. Unfortunately, equities are not cheap, and this makes it a challenging...
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Gavekal Research
Louis Gave
Jul 02nd 2014
5C Overview: Gold & inflation
An investor who bought gold upon Arthur Burns’ arrival at the Federal Reserve and held it up until the day Ben Bernanke announced the second round of quantitative easing would have done about as well as someone who bought-and-held US equities (using the S&P 500 total return as the proxy). Both assets compounded at a little over 10% a year between February 1970 and August 2011. Amusingly, most gold-bugs reacted to QE2 (and then QE3) with glee...
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Gavekal Research
Andrew Batson
Jul 02nd 2014
5C China: Looking For The Exit From Deflation
From the consumer’s perspective, China’s inflation trends look wonderfully benign, with the consumer price index showing the kind of stable and low-but-positive inflation readings beloved of central bankers. Since 2012, CPI inflation excluding food has hovered around 1.6% YoY, never going above 1.9% or below 1.4%. Yet from the producer’s perspective, China has been going through an extended and wrenching period of deflation: the producer price...
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Gavekal Research
Tom Miller
Jul 01st 2014
Perilous Seas
Across Asia, Xi Jinping’s much-vaunted “Chinese Dream” looks more and more like a Chinese nightmare. Last week, China unveiled an official map showing the South China Sea as an integral part of the country. The new map, which is designed to enhance awareness of China’s territorial claims stretching down the coasts of Vietnam, Malaysia and the Philippines, deepens concern that the China Seas are beginning to resemble central Europe in the early...
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Gavekal Dragonomics
Andrew Batson
Jul 01st 2014
Growth, Reform Or Both?
Is China’s government more focused on short-term growth or long-term reform? Those hoping for a clear answer are getting disappointed.
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Gavekal Research
Tom Miller
Jul 01st 2014
Perilous Seas
Across Asia, Xi Jinping’s much-vaunted “Chinese Dream” looks more and more like a Chinese nightmare. Last week, China unveiled an official map showing the South China Sea as an integral part of the country. The new map, which is designed to enhance awareness of China’s territorial claims stretching down the coasts of Vietnam, Malaysia and the Philippines, deepens concern that the China Seas are beginning to resemble central Europe in the early...
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Gavekal Research
Louis Gave
Jun 26th 2014
Buried Krugerrands Or Outperforming Emerging Markets
Approaching 2014’s half-way mark most major asset classes have returned between 3% and 6% over the year to date. There are two outliers: Japan, which has lagged other markets following 2013’s gains, and precious metals, which have outperformed. So far this year gold is up 9.4%.
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Gavekal Research
Jun 25th 2014
Five Corners (25 June)
In the latest bi-weekly review of global economics and investment:
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Gavekal Research
Pierre Gave
Jun 24th 2014
Rising Velocity Is Driving Markets
As we approach the half-year mark for 2014, it is remarkable how well asset markets have performed this year. Pretty much every major asset class has registered decent gains. US bonds? The long end of the US government bond market is up by 10%, even after the recent mild sell-off. Commodities? The CRB index is up by 8.6%. Global equities? The world MSCI is up by 6%.
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Gavekal Research
Research Team, Tom Holland
Jun 23rd 2014
The Hong Kong Crisis That Isn’t
Over the weekend 700,000 inhabitants of Hong Kong, China’s dominant international financial center, voted in an unofficial referendum calling for full democracy and universal suffrage in the territory from 2017. The poll comes just over a week before a pro-democracy movement known as Occupy Central—or Occupy Central With Love And Peace, to give it its full name—has threatened to blockade key roads in the city, bringing the main financial...
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Gavekal Dragonomics
Andrew Batson, Ernan Cui
Jun 23rd 2014
Healthcare: From Demand To Supply
The moment has come for China’s healthcare sector. As the nation’s economy shifts onto a slower growth trajectory, the boom sectors of the previous decade or two are in retreat, and domestic and foreign investors are looking for new growth areas. Healthcare fits the bill: the economic properties of healthcare mean that, at least over the longer term, demand for health services will grow at least as fast and probably faster than the overall...
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Gavekal Research
Thomas Gatley, Long Chen
Jun 20th 2014
5C China: Broccoli Or Cheesecake?
It’s now official. In a speech delivered in London, China’s Premier Li Keqiang said his government “can guarantee economic growth won’t slip below 7.5%” this year. It’s the first time he has stated explicitly that Beijing regards 7.5% as its floor for growth in 2014. Until last week he had maintained that a moderate slowdown would be tolerable and that the government was focused more on the quality than the quantity of China’s GDP.
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Gavekal Dragonomics
Rosealea Yao
Jun 20th 2014
More Postcards From The Edge Of Sichuan
Two years ago, we visited a small rural county near the southern edge of Sichuan province, whose residents and officials were able to give us some insights as to how central government policy was being implemented at the grassroots level (see Postcards From The Edge Of Sichuan). Since then, a new administration has come to power, which is trying to shake up how local government works. So we recently paid a return visit to the place we call...
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Gavekal Research
Jim Lennon
Jun 19th 2014
Indonesia Ups The Ante On Resource Nationalism
The China-driven resource boom over the past decade has created great wealth in developing countries with big mining industries. It has also created a move toward “resource nationalism,” as countries seek to capture more of the value of their natural resources by clamping down on exports of raw ores and forcing investment in domestic smelting and processing plants. The poster child for this movement is Indonesia, which banned exports of many...
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Gavekal Research
Rosealea Yao
Jun 18th 2014
China Property: How Bad Can It Get?
The critical question in China today is the direction of the property market. Are we finally seeing the long overdue, bloody end to a mammoth housing bubble? Or is this simply a cyclical correction, similar to previous downturns in 2008 and 2012, that will quickly reverse after modest price cuts and an easing of credit?
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Gavekal Research
Anatole Kaletsky, Louis Gave, Andrew Batson
Jun 13th 2014
New York Seminar June 2014 - Louis, Anatole & Andrew
We held our summer seminar in New York on June 10, with Anatole, Louis and Andrew offering their take on the state of the world economy and financial markets. We were also joined by Henrik Christensen who is director of Robotics at Georgia Tech. Audio recordings of their discussions are available below:
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Gavekal Research
Tom Miller
Jun 12th 2014
A Chinese Bretton Woods?
Even as it plants offshore oil rigs and rams foreign vessels in disputed waters, China is wooing its neighbors with infrastructure investment. Its next step is to create new multilateral banks whose twin goals are to allay fears about Chinese expansionism and to provide an alternative to the US-dominated system of development finance.
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Gavekal Research
Long Chen
Jun 10th 2014
The Risks Of Selective Easing
The Chinese government is finally getting worried about the economy. Following a series of inspection tours, Premier Li Keqiang has clearly signaled that he doesn’t want growth to slow much from the current rate. The State Council has asked the People’s Bank of China (PBOC) and various ministries to take supportive measures. The central bank is complying, reluctantly, but the risk is that its minimalist moves both fail to support growth and...
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Gavekal Dragonomics
Thomas Gatley
Jun 10th 2014
The Capital Spending Crunch Continues
For an economy so reliant on investment, China suffers from a strange dearth of accurate and timely ways to gauge businesses’ capital spending. The most common reference—monthly data on fixed-asset investment—has been painting a bizarrely rosy picture, with nominal growth steady around 20% for years. In reality, investment has slowed very sharply since the big stimulus of 2009, as it takes only a glance at the current suffering of the heavy...
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Gavekal Research
Thomas Gatley
Jun 09th 2014
5C China: Squeezing Shadow Credit Is A Risky Business
Last week the central authorities launched an investigation into a trading company in the port city of Qingdao, which supposedly pledged stocks of aluminum and copper multiple times to secure foreign currency bank loans. The immediate impact was a 5% fall in the copper price, which historically derived some support from the metal’s use as collateral in Chinese financing deals.
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