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E.g., 30-11-2020
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    Gavekal Dragonomics

    Beijing’s Persian Power Play

    Now that sanctions may be lifted, Iran is hoping to re-engage western investors and to weaken China’s stranglehold on its economy. Unless Beijing can successfully transcend the bilateral tensions of recent years to consolidate its first-mover advantage, China’s energy interests and strategic goals in Iran could gradually come undone.

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    Gavekal Research

    The Xi Jinping Put

    Over the weekend the Chinese government rushed out an unprecedented grab-bag of measures intended to support the free-falling A-share market, which by Friday’s close had tumbled 29% from its mid-June high. By deploying almost every weapon in their armory, the authorities managed to arrest the market’s slide, at least in the immediate short term. By the close of trading on Monday, the Shanghai market was up 2.4% from Friday’s close. But there is...

    3
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    Gavekal Research

    The Unequal Sell-Off in Chinese Stocks

    While the world’s headlines are concentrating on Greece, the real drama in financial markets is happening much further to the East. Since its peak in mid-June, the Shanghai Composite Index has now fallen by almost -23%, putting mainland Chinese shares in what is generally accepted to be bear market territory. Meanwhile intra-day volatility has reached mind-blowing levels, with the index swinging by more than 6% from peak to trough in each of the...

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    Gavekal Research

    Five Corners (July 01): Manufacturing Machinations

    Overview: Charles Gave argues that the manufacturing sector remains the last bastion of proper economic data in the US, and the message being sent is not good. United States: Tan Kai Xian somewhat demurs from Charles and argues that the US manufacturing sector is unlikely to be the fountainhead of the next US recession. Europe: Central Europe has emerged as the manufacturing powerhouse of Europe at the expense of France and the southern...

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    Gavekal Research

    Chinese Equity Demand And The Acceleration Phenomenon

    More than any other major stock market, Shanghai is driven by flows from domestic retail investors. And obviously, in the past couple of weeks, many of these retail investors have decided to head for the exits (the Shanghai Composite Index has plunged -22% from its early June high). Of course, this drop only brought Shanghai back to where the index stood in mid-April; but why the sudden rush for the door? Have the drivers of retail sentiment...

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    Gavekal Dragonomics

    How Low Will Interest Rates Go?

    Continued weak growth and high borrowing costs have led the People’s Bank of China to cut interest rates again. The timing looked like a gift to stock-market investors, coming after the 20% correction in the Shanghai market over the past two weeks, but stocks were nonetheless down another 3.3% on Monday. We think more monetary easing is inevitable, though we suspect that for the next half-year or so the central bank will try hold off on rate...

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    Gavekal Research

    5C China: Better Manufacturing, Not Just Bigger

    China’s status as the workshop of the world faces no serious challengers. Accounting for nearly 25% of global manufacturing value-added, it is by far the world’s largest single manufacturing economy. But the country’s leaders still seem discontented. China may have quantity, they fret, but it lacks quality. It is not enough for China to be a “big” manufacturer, they say, it must also be a “strong” one. With a spate of new industrial policies...

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    Gavekal Dragonomics

    Macro Update: After Easing, A Limited Recovery

    In the latest quarterly chartbook, Chen Long summarizes the outlook for China’s growth and economic policies in a concise presentation. After a very weak start to 2015, the authorities stepped up their supportive policies. Housing sales are now growing again as a result, but the industrial sector is still weak, and the recovery has been marginal. But the fixes to some of the first half’s fiscal problems should offer more support to growth in the...

    3
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    Gavekal Research

    A Bear Market, Or A Rotation?

    Last week’s violent sell off in Chinese A-shares inflicted punishing losses on mainland retail investors and prompted any number of skeptical international commentators to declare that mainland China’s stock markets were a bubble that had now burst. The Shanghai Composite Index fell 13% over the week, losing an eye-watering 6.4% on Friday alone to round off the worst week for Chinese equities since the financial crisis of 2008. With the index...

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    Gavekal Research

    Still A Lonely Power

    China, the political scientist David Shambaugh declared last year, is a “lonely power”—lacking close friends and possessing no allies. That is something that Xi Jinping’s “proactive” foreign policy aims to change. His New Silk Road vision—now officially termed the “Belt and Road Initiative”—is to forge a “community of shared destiny,” in which Asia’s prosperity is tied to China’s rise. Rather than building formal alliances, Beijing’s goal is to...

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    Gavekal Dragonomics

    China Update: Local Government Bond Issuance Takes Off

    From a standing start just one month ago, China’s local government bond market has leapt into life with remarkable vigor. Since mid-May, when Jiangsu became the first province to issue bonds under Beijing’s local government debt restructuring program, a further 16 provinces have also tapped the market, raising a total of RMB600bn.

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    Gavekal Research

    Five Corners (June 17): Bond Market Shakeout

    Overview: Charles Gave argues that the lack of market-making capacity in the financial sector means that the next big market move could be highly disorderly. United States: 10-year Treasuries look overvalued on a fundamental basis, but don’t expect an immediate correction says Tan Kai Xian. Europe: German bond yields have had a roller coaster ride of late so François Chauchat checks in to reassess their valuation anchors. China: From a standing...

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    Gavekal Dragonomics

    Turning Cautious On Land Reform

    The Chinese leadership’s recent enthusiasm for “modern agriculture” featuring large, mechanized farms has waned in recent months, as abuses mount and efficiency gains fail to appear. The evolution of land reform policy is thus an excellent lesson in how reformist ambitions do not always survive an encounter with China’s messy reality.

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    Gavekal Research

    5C China: Local Government Bond Issuance Takes Off

    From a standing start just one month ago, China’s local government bond market has leapt into life with remarkable vigor. Since mid-May, when Jiangsu became the first province to issue bonds under Beijing’s local government debt restructuring program, a further 16 provinces have also tapped the market, raising a total of RMB600bn. The rapid pace at which local governments are issuing bonds to pay down their short term debts means that Beijing’s...

    0
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    Gavekal Dragonomics

    The Capital Spending Downshift

    Easier monetary policy and targeted stimulus may stabilize China’s economy, but anyone hoping for a rebound in capital spending growth is sure to be disappointed. Real gross fixed capital formation rose a meager 6.6% in 2014, the slowest pace since 1999 and far below the 15% average in 2002-11. It is likely that investment growth will fall a bit further this year. One reason is that even after rate cuts, China’s real cost of capital is still...

    0
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    Gavekal Research

    Oil At Its Ceiling, Not Floor

    With oil prices rebounding strongly this week, despite the non-event of last Friday’s meeting of the Organization Of Petroleum Exporting Countries, it seems appropriate to re-examine the case for cheaper oil that we have been presenting since late last year. Specifically, our view in December that US$50/bbl was more likely to be a ceiling than a floor for the Brent oil price in the long term has been contradicted by market actions of recent...

    2
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    Gavekal Dragonomics

    Making Sense Of Corporate China

    Like it or not, financial liberalization means that global portfolios will soon have to include far more Chinese stocks and bonds. Investors need to pay close attention to what they are buying.

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    Gavekal Dragonomics

    CEQ Q2 2015 - How To Invest In Shanghai Without Losing Your Shirt

    Investing in Chinese equities will soon no longer be optional. Doing so successfully is a challenging task, but not an impossible one.

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    Gavekal Dragonomics

    Youku Tudou: Watch With Care

    Youku leads in China’s raucous online video market, but will struggle to stay independent thanks to government censorship and a business model combining the worst aspects of YouTube and Netflix.

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    Gavekal Dragonomics

    Gome: A Second Life, From Behind Bars

    The once and perhaps future king of bricks and mortar retail shows how to come back from the dead, survive the online onslaught, and thrive while its founder serves a 14-year jail term.

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    Gavekal Dragonomics

    Nu Skin: Life In The Gray Zone

    A multi-level marketing firm shows it is possible to survive while skirting the edges of Chinese commercial law.

    0
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    Gavekal Dragonomics

    Tingyi: Scale Over Margins

    Conventional wisdom says consumer-products firms do best to sacrifice volume for margins. China’s biggest instant-noodle maker proves otherwise.

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    Gavekal Dragonomics

    Biostime: High-End Success Story

    A leader in the ethically challenged infant formula industry proves the value of a high-priced strategy.

    0
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    Gavekal Dragonomics

    Books-Straight From The Crocodile's Mouth

    Alibaba’s World: How a Remarkable Chinese Company Is Changing the Face of Global Business

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    Gavekal Dragonomics

    By The Numbers

    Deflation tightens its grip. Headline YoY GDP growth fell to 7% in the first quarter, but more striking was the drop in nominal GDP to 5.8%, the lowest figure since 2009. This implied a GDP deflator of -1.1%, compared to an average of 0.8% in 2014. QoQ GDP growth also slowed to an anemic 5.3%. The slowdown was led by weakness in heavy industry and property; employment, wages and consumption all maintained solid gains.

    0
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    Gavekal Dragonomics

    CEQ: The Chinese Company

    In this special issue of the CEQ focusing on the Chinese company, Matthew Forney lays out the rules of the road for investing in China, and how avoid getting caught by the stereotypes of Chinese companies entrepreneurial miracles or fraud-ridden freak shows. Five profiles offer bottom-up lessons on how Chinese companies work.

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    Gavekal Research

    Protect And Survive

    Bond yields keep rising, emerging markets are softening and key cyclical stocks have taken a bath. The more I look at the global situation the more I am convinced that both economies and markets are reaching a point of transition. And as that old sage Yogi Berra said: “When you come to a fork in the road, take it!”

    3
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    Gavekal Dragonomics

    Chinese Equities And The Taiwan Syndrome

    Is China’s equity market going through a structural re-rating, or blowing up a bubble fueled by easy money and dumb investors? The broad Gavekal view is that China is again pursuing transformative economic reform which should end with a less meddling state and a greater role for market forces (see The New Way To Think About China). In emerging markets, such bursts of reform usually follow a financial crisis so conditions are rarely conducive to...

    0
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    Gavekal Research

    Thinking Big About China

    There are two big facts about China today. One: its economy is slowing, and will almost certainly continue to do so for the next couple of years. Two: under its forceful president Xi Jinping, it is making a big push on many fronts to increase its influence around the world. The question is which of these facts deserves more attention.

    2
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    Gavekal Research

    QSCB: The New Way To Think About China

    China’s annual economic growth rate has slowed to its lowest level since the early 1990s, and is set to slow further over the next few years. But for investors the headline growth numbers are likely to prove rather less important than President Xi Jinping’s determination to establish China as a major international financial power at the center of its own regional trading and investment network. If realized, Beijing’s objectives imply clear...

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    Gavekal Research

    The Spat In The Spratlys

    It is typhoon season once again in the South China Sea. Last May, China ignited a storm of violent protest across Vietnam when it started drilling for oil off the Vietnamese coast. This year the squall is further south in the disputed waters of the Spratly Islands, where the US has demanded that China halt its land reclamation efforts. Ordered to leave the area by the Chinese military last week, a US Navy surveillance aircraft ignored the...

    0
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    Gavekal Research

    Five Corners (3 June): Shifting Capital Flows

    Overview: Louis Gave traces China’s rejection of planned economy shibboleths over the last 30 years and contends that Beijing is charging full tilt toward the final frontier: the liberalization of capital itself. United States: With the strength of the US dollar favoring imports over US-made goods, the US current account balance is set to deteriorate. This, argues Will Denyer and Tan Kai Xian, will mean a bigger supply of US dollar liquidity in...

    0
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    Gavekal Research

    5C China: Capping Capital Outflows

    The People’s Bank of China has achieved its purpose. Since mid-March, when the central bank intervened in the foreign exchange market to halt the depreciation of the renminbi against the US dollar, capital outflows from China have diminished, averting the threat of domestic financial instability.

    0
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    Gavekal Dragonomics

    A New Market For Power

    China’s government has a new plan to reform the electricity sector, introducing a more competitive, market-based pricing system and encouraging cleaner power. If the reforms are successful, the big winners will include end-users and greener, more efficient producers. The losers will be the grid companies, which face a future of squeezed margins.

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    Gavekal Research

    Growth & Markets Monthly (June 2015)

    This month saw a clear deterioration of our growth indicators. The pattern of the last few years with a weaker than expected first half of the year appears to be holding up. The question is whether 2015 will see the habitual pick-up in the second half of the year? On the inflation front, things remain quiet. US breakeven inflation rates, which looked as if they may have been breaking upwards last month, are now heading south again. Given the...

    0
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    Gavekal Research

    5C Overview: First You Get The Money

    In Scarface, Al Pacino observes “First, you get the money, then you get the power, then you get the women”. To some extent, this sums up the challenge facing China’s leadership. Indeed, the lesson the Party learnt once Deng Xiaoping took over from the power-mad Mao Zedong was that ceding control over a part of the economy delivered more power internationally as booming growth made China a more credible regional, then global, power.

    0
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    Gavekal Research

    Beijing’s Margin Risk Calculus

    It is easy to point to possible triggers for yesterday’s gut-wrenching -6.5% sell-off in China’s Shanghai Composite A-share index. The Communist Party’s People’s Daily newspaper ran an editorial warning against the risks of an asset bubble. The central bank drained liquidity from the interbank market ahead of a series of initial public offerings next week which could lock up as much as RMB5trn. One of China’s sovereign funds reduced its...

    0
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    Gavekal Research

    In Shanghai Rally, Two Worlds Collide

    After reaching touching distance of 5,000 the Shanghai Composite fell 6.5% yesterday, capping off a tumultuous month for China’s equity markets. Yet with accommodative policy, positive political signals, and increased openness to foreign fund inflows all continuing to support the bull market, it seems unlikely that this is the rally’s end. Meanwhile valuations continue to take a back seat. Indeed, with the median price to earnings ratio now...

    2
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    Gavekal Research

    A Question Of When, Not If

    The cacophony emanating from China can be disorientating. On the one hand, China’s domestic stock markets are in the throes of a vigorous bull run. Locally-listed equities are up 140% in the last 12 months, with repeated government support measures and rising openness to international fund flows sustaining the momentum. On the other hand, China’s economic growth continues to slow, while the geopolitical drumbeat is increasingly daunting. With...

    0
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    Gavekal Dragonomics

    Making Sense Of China’s Reform Strategy

    Since coming to power in late 2012, Xi Jinping has delivered one surprise after another. Simple labels of reformer or conservative are an increasingly difficult fit. Instead, we should take Xi at his word: he is mainly a nationalist pursuing a dream of national revival.

    0
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    Gavekal Research

    Two Steps Forward, One Step Back

    A series of developments over the last week have called into question how committed Beijing really is to reforming the finances of China’s local governments, which in recent years have accumulated enormous debts. We believe the recent stream of statements and new policy measures is consistent with Beijing’s broad debt management strategy, which aims to avoid the risk of disruptive deleveraging and defaults (see [China] The Emerging Strategy For...

    3
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    Gavekal Research

    Five Corners (20 May): Assessing Oil's Comeback

    Overview: In light of the rebound in oil prices Anatole Kaletsky questions his own view that the oil market is becoming driven by “marginal cost producers”, rather than classic monopoly dynamics.

    0
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    Gavekal Dragonomics

    Can Wage Growth Continue To Outpace GDP?

    Labor is taking home more of China’s economic gains, and will continue to do so, though the reasons have more to do with fortunate demographic timing than brilliant policymaking. This trend, Thomas argues, will help keep consumer spending resilient amid the investment slowdown.

    0
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    Gavekal Research

    The Dissonance In Markets

    Perhaps the biggest challenge confronting investors today is the disconnect between financial markets and economic data. Indeed, despite weak readings from the growth locomotives of the global economy (China and the US), recent weeks have seen bonds selling off, commodities going on a tear, and deep cyclical equities experiencing huge rebounds. In short, while economic data is pointing towards a mediocre global growth outlook, markets are...

    1
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    Gavekal Research

    5C China: Why The Crude Buying Spree?

    China’s economic growth may be slowing, but its appetite for oil imports is undiminished. In the first quarter of 2015, China imported a record 589mn barrels of crude, up 7.5% from the first quarter of 2014. Last month alone, China imported 222mn barrels of oil, overtaking the US, which imported a relatively modest 216mn barrels, as the world’s biggest importer.

    0
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    Gavekal Dragonomics

    Property Responds To Treatment

    Although China’s economic data for April were generally mediocre, property was a bright spot. National property sales rebounded to a 7% YoY gain, after 1% decline in March, marking the first positive growth in 15 months. The latest interest rate cut is likely to further fuel the recovery, and indeed preliminary data point to continued sales gains in May. Broad-based monetary easing has proved a more effective remedy for weak housing demand than...

    0
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    Gavekal Research

    Why Asia Should Suck Up Tantrum II

    Asian currencies took a hit yesterday as the ongoing global bond market sell-off forced capital outflow. Yet unlike the “taper tantrum” of two years ago, the region has navigated this sell-off with limited collateral damage—emerging Asia’s benchmark bond index has fallen by -3% in the last two weeks compared with a -19% peak-to-trough slump in 2013. In this piece we are not going to opine on the outlook for global bond markets as our last two...

    0
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    Gavekal Research

    New York Seminar May 2015 - Anatole, Louis, Joyce & Will

    We held our US spring seminar in New York on May 11, with Anatole, Louis, Joyce & Will offering their views on the most important developments in the global economy.

    0
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    Gavekal Dragonomics

    Working Harder To Reduce Rates

    China’s central bank is about to enter uncharted territory. While the People’s Bank of China is still a long way from having to resort to unconventional monetary policy (see To QE Or Not QE), its benchmark lending rate has hit a record low after the latest cut. Yet this move is unlikely to be the last: we think the current easing cycle will deliver one more cut to benchmark rates this year, as well as substantial cuts to bank reserve...

    0
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    Gavekal Research

    A Sino-Indian Powerhouse?

    Next week the leaders of the world’s two biggest emerging economies will meet for talks in Beijing. Together, China and India have a population of 2.6bn—36% of the global total—and a GDP exceeding US$12trn. They share a border nearly 4,000km long. Yet China trades more with Thailand than with its most populous neighbor, and there are eight times as many flights between Beijing and Bangkok per week as there are between Beijing and Delhi. The weak...

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