Gavekal Research

Arthur Kroeber

Feb 26th 2019

So far, so predictable: President Donald Trump’s weekend tweets extending the deadline for US-China trade talks past March 1 made clear his intention to get a deal done, most likely in the second half of March when Xi Jinping pays a visit to Mar-a-Lago. A deal is now almost certain to happen; the live questions are what will be in it and what impact it will have.

Gavekal Research

Louis Gave

Feb 22nd 2019

In recent days, news reports have pointed to an impending trade deal between the US and China. A tweet by the US president that seemed to favor Chinese tech firms has added to that expectation. In this piece, Louis considers two possible outcomes to these talks, with one offering markets a short-term fillip, and the other being a likely gamechanger that will impact investors’ performance for years to come.

Gavekal Research

Louis Gave

Feb 20th 2019

Reserves held by foreign central banks at the Fed are shrinking, which implies there aren’t enough US dollars in the system. This would make sense: the Fed has been draining excess US dollars for the past couple of years. So with shrinking central bank reserves and a shrinking US monetary base, the US dollar should be going up, and most risk assets should be hurting. Oddly, this isn’t happening.

Gavekal Research

Anatole Kaletsky

Feb 19th 2019

Now that stock markets around the world have recovered from the year-end panic of December 2018, it is worth returning to the question I posed here on the first trading day of 2019: was the disappointing performance of equities and other risk assets in 2018 the prelude to a deep and protracted bear market, or a contrarian opportunity to “buy the dip”?

Gavekal Research

Louis Gave

Feb 14th 2019

On Monday we published a piece from Louis in which he assessed the three economic fronts where the US and China are doing battle. In this second part of the series, Louis steps back and considers the chief monetary priorities that China has settled on since the tumultuous events at Tiananmen Square almost 30 years ago.

Gavekal Dragonomics

Dan Wang

Feb 12th 2019

While investors eye the progress of US-China talks to avert tariff hikes, the US is mobilizing on another front. In this piece, Dan explains how the US is preparing for more aggressive use of export controls to disentangle the US and Chinese tech sectors. This can certainly hurt Chinese firms, but will also affect US and other tech companies.

Gavekal Research

Tom Miller

Feb 08th 2019

If the auto industry is a bellwether of global economic health, then much of the world is looking sick. The second half of 2018 was painful for carmakers in all the major auto markets, and 2019 is shaping up to be as bad. Is this just a passing malady that carmakers will soon shrug off, or a chronic condition they will have to manage for years to come?

Gavekal Dragonomics

Ernan Cui

Jan 31st 2019

China’s government has made a cut in personal-income taxes, rushed out in August 2018, a centerpiece of its response to a slowing economy. Additional tax deductions were unveiled in January, but as Ernan explains, the new details are not that bullish for consumer spending. Enforcement is tightening, and some tax breaks will be phased out.

Gavekal Research

Charles Gave

Jan 30th 2019

Six months ago Charles posited the idea of a global recession starting in and around March 2019. He revisits that idea in this piece and concludes that there is clear evidence of the global system suffering a marked slowdown. Here, he seeks to identify the source of the problem by a process of elimination (spoiler alert, the problem isn’t China).

Gavekal Research

Udith Sikand

Jan 28th 2019

After a dismal year for emerging market assets in 2018, emerging markets have started 2019 on a positive note, with equities rising 6.5% and local currency bonds up 3% year-to-date. On Friday, Louis looked at shifts in the US dollar, long term US interest rates, credit spreads and the oil price, and concluded they favor emerging market assets through the rest of 2019. Broadly I agree, but I would take a slightly more nuanced stance. The shifts...

Gavekal Dragonomics

Thomas Gatley

Jan 23rd 2019

China’s private firms suffered a big liquidity squeeze in 2018 as regulators cracked down on shadow financing. But in 2019 they must also contend with the threat of another liquidity squeeze: state-owned enterprises hoarding cash and delaying payments. Unless officials force them to stop, SOEs could squeeze another RMB1trn from private firms.

Gavekal Research

Dan Wang

Jan 17th 2019

Just when the risk from trade politics seemed to be dying down, it’s getting complicated again. Trade talks between the United States and China are in full swing, but just as important are imminent negotiations between the US and the European Union, which are clouded by the US threat to impose tariffs on cars and car parts.

Gavekal Dragonomics

Rosealea Yao

Jan 14th 2019

China’s property market keeps delivering bad news: declines in housing sales, land sales and prices have deepened in recent months. But Rosealea sees some positive signs in easing local government policies, lower bank funding costs, and strong momentum in construction. In this piece, she explains why she is not joining the property-market bears.

Gavekal Research

Louis Gave

Jan 10th 2019

The last quarter of 2018 proved to be something of a horror show for most investors and despite this year starting with a firmer tone, the investment landscape looks to have changed in a fairly profound way. In this report, Louis considers the major shifts in the investment environment and asks whether these conditions will persist through 2019.

Gavekal Research

Research Team

Jan 08th 2019

The massive sell-off in December left global equities on the precipice of a real bear market. Hope and despair are finely poised, but we find a bit more reason for hope. The US and China will both slow, but the US should avoid recession and Chinese growth should stay above 6%. Political and trade-war risk is lower, and liquidity pressures will ease. US equities and EM assets, especially local-currency bonds, both promise positive returns.

Gavekal Dragonomics

Chen Long

Jan 07th 2019

After the central bank's latest cut in bank reserve requirements, the key question is not whether Beijing will continue to loosen policy, but when its measures will begin to have a visible impact. In this piece, Chen Long argues that it will take several more months of easing before the economy and stock market begin to feel the benefit.

Gavekal Dragonomics

Arthur Kroeber

Jan 04th 2019

In 2018 liquidity tightening in the US and China combined with trade war fears to make a miserable year for markets. In 2019 the same forces will be at work but the outcomes may differ. The key questions are: can the US and China work out a trade deal? How bad is the Chinese slowdown and how will Beijing respond? And how much will the Fed tighten?

Gavekal Dragonomics

Dan Wang

Dec 19th 2018

Technology is at the heart of the US-China trade conflict. The US fears that China will challenge its technological leadership, and those fears are not without foundation. In this piece, Dan argues that China is in fact likely to succeed in many of its technological goals—but because of successful companies rather than big government plans.

Gavekal Research

Udith Sikand

Dec 18th 2018

US markets have come back to earth with a bump on a reassessment of risk and growth prospects. As a result, investors are betting on a less hawkish Federal Reserve and a weaker US dollar, both of which are a boon to hard-pressed emerging markets. The question is: do investors gain more from a more favorable US dollar liquidity environment than they lose from a growth picture clouded by a slowing China and unresolved trade tensions?

Gavekal Research

Research Team

Dec 14th 2018

“Books,” wrote Anthony Powell, “do furnish a room.” As author of the million-word, 12-volume A Dance To The Music of Time, Powell was something of an authority on the subject. But it is unlikely even his library was as eclectically furnished as Gavekal’s. If anything, our 2018 holiday reading list is even more varied than those of recent years. Sure, we’ve read and reviewed the economic and financial heavyweights: Barry Eichengreen on currencies...

Gavekal Research

Charles Gave

Dec 13th 2018

My career in financial markets began in January 1971, which means I’ve seen a few bull and bear markets. A common trait of bear markets is that as the big decline starts, most investors have no idea why asset prices are falling. At some point, perhaps much later, the root cause of the marauding bear becomes clear and this revelation triggers the final phase of the sell-off. Hence, in light of the recent pull-backs, readers may like to consider...

Gavekal Dragonomics

Rosealea Yao

Dec 10th 2018

Chinese steel prices suffered their biggest decline in two years in November, falling about 20% over the course of the month. That correction was driven by a combination of a big increase in supply along with worries about future demand. In this piece, Rosealea argues that both problems will be short-lived, and that steel prices can rebound.

Gavekal Research

Louis Gave

Dec 06th 2018

This has been a miserable year across most asset classes, with markets roiled by tighter US dollar liquidity. Looking into 2019, Louis sees the investment environment being dictated by whether the US dollar liquidity situation really is easing, the overall US policy and the possibility for the “Chimerica” relationship to rupture.

Gavekal Research

Thomas Gatley

Dec 05th 2018

Yesterday’s plunge in US equities was partly attributed to fears that the trade war with China is far from settled. A similar mood is taking hold in China: news of the trade truce spurred a rally in Chinese equities on Monday, but gains softened on Tuesday. However, other factors are also weighing on investors in the Shanghai and Shenzhen markets.