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Gavekal Dragonomics
Long Chen
Oct 21st 2014
Slouching Towards 7% Growth
Global growth is slowing and anyone looking for cheer is not going to find it in China, where third quarter GDP grew 7.3% year-on-year—the lowest growth rate since the first quarter of 2009. The slowdown is hardly unexpected, given the limited effects of Beijing’s growth-supporting policies earlier in the year and the long downward slide of private sector investment (see So Much For China’s Mini-Stimulus and Can Reforms Revitalize The Private...
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Gavekal Research
Louis Gave
Oct 20th 2014
Give Last Week Back To The Indians
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Gavekal Research
Research Team
Oct 16th 2014
Torschlusspanik!
The Germans, it is said, have a word for everything—and their word for what we saw in European and US markets on Wednesday and in Asia on Thursday morning is Torschlusspanik. Literally ‘gate-shut-panic’, this describes the nasty crush that develops when everyone rushes at once for an exit that is fast closing; inevitably someone gets injured.
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Gavekal Dragonomics
Andrew Batson
Oct 16th 2014
Can Reforms Revitalize The Private Sector?
China’s heavy reliance on local governments and state enterprises for its stimulus efforts in recent years has diverted attention away from the true driver of growth: the private sector. But unfortunately investment by private firms has been steadily slowing for years, and so has overall growth. In this presentation, Andrew explains why private-sector investment has been weak, and what the government can do about it. There is potential for...
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Gavekal Research
François-Xavier Chauchat, Will Denyer, Joyce Poon, Udith Sikand, Tan Kai Xian
Oct 15th 2014
Five Corners (October 15): The Equity Rout
Overview: François Chauchat asks whether a US recovery is enough to drive global equity markets or has the world changed.
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Gavekal Research
Michael Meidan
Oct 14th 2014
Oil Markets On The Brink
Welcome to the “new normal” of the global oil markets. Investors are waking up to the reality that supply-demand fundamentals have gotten out of whack and are now readjusting. The price of Brent has fallen from its June high of US$115/barrel to around US$88/bbl, its lowest level since late 2010. This report will contend that prices could fall further before settling into a lower range and remaining there for a significant period.
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Gavekal Research
Anatole Kaletsky
Oct 14th 2014
Behind The Equity Market Meltdown
Why are stock markets around the world falling? The surest explanation is one that works whenever the markets move in a big way: there are more sellers than buyers after a long period without a meaningful correction (it is three years since the 20% decline that ended in October 2011). A more sophisticated account of the correction might point to the collapse of oil prices and its impact on natural resource shares. While falling oil prices are...
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Gavekal Dragonomics
Thomas Gatley
Oct 13th 2014
Shanghai A-Shares: The Illusion Of Value
China’s domestic stock markets have been on a tear: Shanghai stocks are up 15% since July, despite recent weak macro data and the absence of aggressive policy easing. Soon, overseas investors will be able to join in the rally: later this month, China will launch a new link between the Shanghai and Hong Kong stock exchanges. But should foreign investors really be eager to pile into Shanghai?
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Gavekal Research
Louis Gave
Oct 10th 2014
Normal Or Systemic Markets?
In The Crucible Arthur Miller wrote “until an hour before the Devil fell, God thought him beautiful in Heaven”. Granted, equity markets have not exactly suffered Lucifer-like de-ratings lately. Nonetheless, the price action in stock markets around the world is looking less and less healthy by the day. Let me explain: when examining the performance of a given index over a very long period of time, one typically finds that, like most things in...
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Gavekal Research
Charles Gave
Oct 09th 2014
If You Keep On Doing What You’ve Always Done...
...you'll keep on getting what you’ve always got. At least, that's what any sports coach worth his salt would tell a losing team in the half-time huddle. And perhaps this is the problem facing the big developed economies. Not enough of today's bien-pensants (Hollande, Merkel, Yellen, Bernanke...) or their advisers (Summers, Piketty, Krugman...) have spent time chasing a ball around a field. Let me explain.
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Gavekal Dragonomics
Long Chen
Oct 09th 2014
The Hidden Trade Deficit
China’s current account surplus, once the focus of global economic anxiety, is shrinking dramatically: it fell to US$182bn in 2013, from its peak of US$420bn in 2008, and as a share of GDP has fallen to 2% from 10%. The conventional wisdom is that this fall reflects much weaker export growth in the poor global environment that followed the financial crisis. In fact the problems of traditional goods trade are overstated: China’s merchandise trade...
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Gavekal Research
Thomas Gatley
Oct 08th 2014
5C China: Calling Time On The A-Share Rally
Stocks on the Shanghai exchange have rallied 15% over the last three months, and international investors are poised for the opening of relatively untrammeled access to onshore equities when the Shanghai-Hong Kong Stock Connect program kicks off later this month (though the rumor-mill suggests it will be pushed back for technical reasons). Tracker funds have been capitalizing on this renewed interest: Deutsche’s year-old Harvest CSI 300 China A-...
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Gavekal Research
François-Xavier Chauchat
Oct 08th 2014
5C Overview: Waiting For The Regional Rotation
After years of doubt about the efficacy of US economic policies, the revival of confidence in America stands out as one of the key developments of 2014. This turnaround has been attested by the recovery of capital investment, by the resilience of the US economy to the Federal Reserve’s tapering process, and more recently by the strength of the US dollar.
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Fathom China
Matthew Forney
Oct 07th 2014
Profile: Great Wall Motor: Off The Road
Great Wall Motor was once considered China’s most promising private car company. It had an excellent reputation, a strong and charismatic founder, a strong position in the fast-growing market for SUVs, and a head start in exporting cars to developed markets. Today, Great Wall risks losing its way.
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Gavekal Research
Arthur Kroeber
Oct 06th 2014
The Hong Kong Endgame
Today, after a week of excitement, the democracy demonstrations in Hong Kong have largely fizzled out—at least for now. As the city returned to work on Monday morning, the remaining protesters did not try to prevent civil servants from reaching their offices in the government’s downtown headquarters. By midday the numbers outside the complex had dwindled to just a few scores, down from the many tens of thousands that had jammed surrounding...
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Gavekal Research
Research Team
Oct 01st 2014
Five Corners (1 October): The Energy Selloff
Overview: Louis looks at the decline in oil prices and wonders whether the genesis can be found back in May when the leaders of China and Russia met for an historic summit.
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Gavekal Research
Michael Komesaroff
Sep 30th 2014
Dr Copper Comes A Cropper
It’s been a brutal year for commodities. Slower growth in China, and stalled economies in Europe and Japan, have eroded end-user demand even as the prospect of higher interest rates in the US has blunted investor appetite for zero-yield assets. At the same time the heavy investment of recent years is now bringing new sources of supply to market. In response, the S&P GSCI commodity index is down -7.2% over the year to date. Even copper, long...
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Gavekal Research
Tom Holland
Sep 29th 2014
Hong Kong's Democracy Protests
The inhabitants of Hong Kong were treated over the weekend to the unusual spectacle of police battling political protesters in the city’s streets. Baton charges and volleys of tear gas might be common enough tactics in New York or London, but not in Asia’s leading international financial center. The rapid escalation of the protests over the weekend and the police’s strong-arm response shocked locals, and triggered a -2% fall in the city’s...
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Gavekal Dragonomics
Rosealea Yao
Sep 29th 2014
Property Digs A Deeper Hole
China’s local governments held a party for the housing market, but no one came. Most major cities (with some exceptions including Beijing and Shanghai) have rolled back measures restricting housing purchases since June, but housing sales are still weak. Previously, we had argued that the combination of a pickup in credit growth and the relaxation of purchase restrictions would help the downturn in property sales find a bottom relatively soon (...
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Gavekal Research
Andrew Batson
Sep 26th 2014
5C China: The Losers From Lower Energy Prices
China should cheer a decline in global energy prices: as the world’s largest consumer of coal and second-largest consumer of oil, cheaper energy cuts its import bill and gives consumers and businesses more money to spend on other things. But falling energy prices have in fact brought significant pain to parts of the country.
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Gavekal Research
Louis Gave
Sep 26th 2014
5C Overview: A Changed Energy Dynamic
As we see it the big developments impacting the global economy over the summer would roughly run as follows:
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Gavekal Research
Louis Gave
Sep 26th 2014
The Rise In Volatility
First it was the foreign exchange markets, then commodities, followed by fixed income markets. Now it’s the equity markets. Wherever we look, volatility has been creeping higher. To some extent, this is not surprising. At the end of the US Federal Reserve’s first round of quantitative easing, and at the end of QE2, the markets wobbled. So with QE3 now winding to a close (and with the ECB still behind the curve), a period of uncertainty and...
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Gavekal Research
Long Chen
Sep 25th 2014
Learning To Live Without Zhou Xiaochuan
For the past few weeks Beijing has been buzzing with rumors that Zhou Xiaochuan, the head of the People’s Bank of China (PBOC) for more than a decade, will step down in coming months. We do not know if these rumors are true, but what is clear is that even if Zhou does not leave this year, his time left in office is limited. Zhou has already passed the customary retirement age and has stayed in office only through an unusual bureaucratic dodge....
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Gavekal Research
Long Chen
Sep 24th 2014
The PBOC Hangs Tough
These are nervous times for global investors as volatility creeps back into asset markets and growth indicators disappoint—witness recent sharp declines in commodity prices and currencies such as the Australian dollar. The eurozone economy continues to weaken as shown by yesterday’s soft French PMI, Japan is moribund and China, while far from collapsing, continues to slow. Given the Federal Reserve’s tightening bias and a continued failure to...
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Gavekal Research
Joyce Poon
Sep 22nd 2014
Asia Can Handle A Strong Dollar
Can emerging markets handle a strong US dollar? This is a crucial question for investors in emerging Asia since an appreciating dollar has often spelt trouble for the region’s markets. The worry is that the dollar now looks to be on a secular strengthening trend with the DXY up 6% since July 1. For its part, the MSCI Asia ex-Japan index has lost 3% in less than two weeks.
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Gavekal Dragonomics
Long Chen
Sep 22nd 2014
Accepting The Inevitable
Weakening growth pushed China’s reform-minded government into some reluctant and half-hearted stimulus measures earlier this year. But the effect of the “mini-stimulus” was in fact pretty minimal, and growth has since turned downward again. In the latest installment of our China Macro Chartbook, we summarize the state of the economy in a few well-chosen slides. Current signs point to the government becoming somewhat more accepting of the...
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Gavekal Dragonomics
Andrew Batson, Ernan Cui
Sep 18th 2014
The Genesis Of The Capitalist Farmer
The world’s biggest farm is running out of farmers. So to continue its impressive record of boosting agricultural production, China needs to change how it raises crops—shifting from techniques that rely on lots of labor to ones that use more capital and technology. If this structural transformation is going to happen, China will need a sustained boom in agricultural capital spending.
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Gavekal Research
Research Team
Sep 17th 2014
Five Corners (17 September): World Bond Markets
In our latest bi-weekly review of global economics, we take a searching look at the state of global bond markets. As the US Federal Reserve inches closer to a tightening bias, bond investors must climb a wall of fear. Recent weeks have seen yields rise globally. The issue is whether this represents a nervous short-term move or a bigger shift in the cycle. Gavekal Dragonomics analysts consider the picture from the major economic regions.
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Gavekal Research
Charles Gave
Sep 17th 2014
How To Game A Rigged Market
Markets are on alert in a week that could see more great insights from the gods of central banking on high. Investors seem a little spooked with the MSCI emerging markets index off 4% in the last eight trading days, while currency volatility has picked up as the US dollar has strengthened. And yet despite these minor ructions, there remains a deeper sense of calm. It is the sort of quiescence born of insiders’ knowledge that the nature of...
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Gavekal Dragonomics
Long Chen
Sep 15th 2014
So Much For China's Mini-Stimulus
So much for the ‘mini-stimulus’. The data on China’s economic performance in August released over the weekend were dismal, showing a significant and unexpected decline in growth. The boost from the government’s suite of supportive policies was always going to be temporary, but renewed weakness is appearing much sooner than expected. We had previously thought that policy could keep growth stable for a couple of quarters (see Fears For China’s...
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Gavekal Research
Sep 12th 2014
5C Overview: Weatherproofing Bond Portfolios
For much of this year bond investors have been in ‘risk-on’ mode. When in April the European Central Bank first hinted it was preparing to embark on its own unconventional easing measures, investors concluded that with all the world’s major central banks now offering a put on growth, it was safe to head out in search of extra yield. Global bond markets duly rallied across the board, with volatility falling to near-record lows.
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Gavekal Research
Louis Gave
Sep 12th 2014
Behind The RMB's Strength
When Michael Milken invented junk bonds in the early 1980s, few foresaw that his new market would change the way companies financed themselves. Nor did they think it would alter how businesses looked at their cost of capital, trigger an M&A boom, midwife the birth of the private equity industry or change the way banks were run. However, with hindsight, it is obvious that the creation of junk bonds was one of the most important financial...
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Gavekal Dragonomics
Sep 12th 2014
Korea Thriving In China's Chilly Investment Climate
Many multinational companies are under pressure in China, facing a slowing economy and slowing sales, as well as increased regulatory scrutiny. This is beginning to show up in business plans: annual surveys of American and European businesses by their Beijing-based chambers of commerce show that while China still ranks as a top-three global investment priority, more and more companies are scaling back their expansion plans. For Japanese...
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Gavekal Research
Louis Gave
Sep 12th 2014
5C China: RMB Bonds Are Still The Place To Be
In 2008 China’s leaders learnt the hard way that US bankers were no smarter and US regulators no more capable than bankers and regulators anywhere else. With the instability of the US financial system brutally exposed by the crisis, it no longer looked sensible for China to depend on the US dollar for 100% of its foreign trade. In response, Beijing invited other developing economies—Russia, Brazil, South Africa, Indonesia—to settle their trade...
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Gavekal Research
Joyce Poon
Sep 11th 2014
Asia’s New Credit Cycle
The US dollar’s renewed strength has seen most major currencies swoon before it in recent weeks. A notable exception has been the emerging Asia basket which has seen declines of less than 1% against the dollar compared to falls of up to 5% for the euro, yen and sterling. We don’t think this is a case of emerging Asia being the next shoe to drop. Instead, under-owned Asian markets look to be in an early phase of a new credit cycle following the...
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Gavekal Dragonomics
Rosealea Yao
Sep 08th 2014
The Slums Are Still With Us
One of the paradoxes of China’s housing market is that excess supply in many areas coexists with a shortage of housing for the worst-off. We have long argued that a significant portion of the Chinese urban population is under-housed, lacking access to modern living arrangements. Given continued worries over excess housing supply in China, we recently decided to test this analysis by re-estimating the housing stock from different data sources....
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Gavekal Dragonomics
Research Team
Sep 04th 2014
CEQ: Is It Safe? Pollution And Food Safety
Unbreathable air and toxic food top the list of urban China's anxieties, and the government has finally started to take notice. Since taking office in 2013, President Xi Jinping and Premier Li Keqiang have aggressively stepped up efforts to clean up the polluted skies and improve the safety of the food supply. The air pollution efforts have borne some fruit: average levels of fine particulates fell by 9% in the first half of 2014. But a lot...
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Gavekal Research
Research Team
Sep 03rd 2014
Five Corners (3 September): World Labor Markets
In our latest bi-weekly review of global economics, we take a searching look at the forces affecting labor markets in the world’s major economies. How robust are the medium term prospects for wage growth? And how will the longer term forces of ageing populations and increasing automation affect the outlook for jobs? Overview: Arthur Kroeber examines how the wage-positive influence of developed world demographics will balance the job-negative...
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Gavekal Research
Tom Holland
Sep 02nd 2014
Killing Democracy To Save Capitalism
Beijing is tightening its control over Hong Kong’s institutions and political processes. Last week anti-corruption agents raided the homes of three of the city’s prominent pro-democracy figures. Then on Sunday Beijing handed down a long-awaited decision on constitutional development which crushed the city’s hopes for open elections. China’s increasing influence over the nominally-autonomous territory is deeply resented by many in the former...
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Gavekal Research
Anatole Kaletsky
Sep 02nd 2014
Market Review: A Summer Series
In late July and early August Anatole went up the mountain so to speak and penned a series of articles that aimed to explain where we were in the current market cycle, and more importantly where we are likely headed. With most major asset classes continuing to head higher we thought it worth republishing Anatole’s consolidated thinking in a single document. Please click on the pdf link above, or, alternatively, the articles can be read...
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Gavekal Research
Pierre Gave
Sep 02nd 2014
Growth & Markets Monthly (September 2014)
This month we note a slight deterioration in our global growth indicators, which probably mirrors the significant economic deceleration seen in Europe. On the risk side, markets do not appear stressed, although there has been a slight widening in the US corporate spread (albeit from very low levels). On the question of inflation vs deflation our indicators offer a mixed picture: on the one hand our diffusion index of US CPI components keeps...
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Gavekal Dragonomics
Research Team
Sep 01st 2014
CEQ Q3 2014
“Selective easing” of monetary policy temporarily boosted GDP growth. Premier Li Keqiang has shifted emphasis away from structural reform and toward supporting growth. Credit growth picked up in Q2 and fiscal spending accelerated, enabling GDP growth to rebound modestly to 7.5%. But the cyclical support is not enormous and growth will likely slow again in early 2015.
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Gavekal Dragonomics
Tom Miller, Research Team
Sep 01st 2014
CEQ Q3 2014 - Stirring Dragon, Nervous Neighbors
Asia’s Cauldron: The South China Sea and the End of a Stable Pacific by Robert D. Kaplan (Random House, 2014)
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Gavekal Dragonomics
Research Team
Sep 01st 2014
CEQ Q3 2014 - Food Security, China Corruption, Asia Pacific High Anxiety
A New Line On Food Security
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Gavekal Dragonomics
Tom Miller, Research Team
Sep 01st 2014
CEQ Q3 2014 - Beijing Eyes The Bay Of Bengal
China wants to build road and rail links from Yunnan all the way to Kolkata, thus securing a virtual western seacoast. Myanmar and India want the investment but are wary of the strategic implications.
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Gavekal Dragonomics
Research Team, Ernan Cui
Sep 01st 2014
CEQ Q3 2014 - Keeping The Dinner Table Healthy
After enduring milk powder laced with industrial chemicals and pork tainted with dangerous steroids, Chinese consumers are ramping up demand for imports and organics. Local firms are responding by consolidating markets and upgrading their technology, and the government is tightening food safety rules.
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Gavekal Dragonomics
Research Team
Sep 01st 2014
CEQ Q3 2014 - Bringing Back The Blue Sky Days
After Beijing’s infamous Airpocalypse, Premier Li Keqiang declared war on air pollution. Official data show surprising progress in the past year. To sustain this progress, the government must embrace more systematic and market-oriented approaches.
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Gavekal Dragonomics
Research Team
Sep 01st 2014
CEQ Q3 2014 - A Real War, More Ammo Required
China’s pollution problems may not be the worst in history, but they are bad enough. Progress in correcting them has been real but inconsistent. Loud commitments by the new leadership, and a tough new environmental law, offer hope of a faster clean-up.
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Gavekal Dragonomics
Arthur Kroeber, Research Team
Sep 01st 2014
CEQ Q3 2014 - Summertime, And The Jailin' Is Easy
Xi Jinping’s war on corruption is far more than just a cynical power-play. Will it work?
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Gavekal Research
Andrew Batson
Sep 01st 2014
5C China: Wage Growth Still Solid For Now
As China’s economic growth has downshifted over the past few years, one of the big surprises has been the absence of bad news from the job market. Wages are still rising at double digit rates, and employers still have trouble filling vacancies. The reason, as is now widely understood, is that the structural slowdown in investment growth is happening at the same time as a structural shift in the labor market. Changing demographics and the...
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