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E.g., 11-05-2021
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    Gavekal Dragonomics

    China’s Broken Directional Signal

    There has clearly been a recent breakdown of communication between Beijing and global financial markets. The underlying problem is that policies that are good for China are bad for the rest of the world, and vice-versa. Beijing has not made clear whether it will do what’s right for China, what’s right for the rest of the world, or neither.

    1
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    Gavekal Research

    A Solvency Crisis Or A Liquidity Crisis?

    Over the past five years, critics of zero-interest rate policies have typically fallen into one of two camps:

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    Gavekal Research

    The Four Horsemen Of The Apocalypse

    In almost every good movie battle scene, the heroes must face attacks on several fronts at once. Invariably, as losses mount, the defensive perimeter shrinks until, with American movies at least, (Saving Private Ryan, Fury…) the cavalry arrives in the nick of time, and our heroes are saved. If the movie is French (La 317eme Section) the position gets overrun and, like in Camerone or Dien Bien Phu, a glorious disaster ensues. Right now, many...

    1
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    Gavekal Research

    How To Build A Reserve Currency

    A store of value, a unit of account and a medium of exchange—these are the three essential characteristics of any proper currency. Needless to say a reserve currency must possess all three. But they are far from enough. A reserve currency must have at least six other attributes too, as Jacques Rueff and Robert Triffin did so much to establish.

    1
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    Gavekal Dragonomics

    Expect The Unexpected

    The last couple of months have caused whiplash for China-watchers: first, the government creates huge uncertainty by a massive intervention to prop up the stock market. Next, the government creates huge uncertainty by giving up much of its historic control over the exchange rate. So does the Chinese government love markets or hate them? It is hard to tell a consistent story either way (though that hasn’t stopped people from trying). The one...

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    Gavekal Research

    Four Lessons And Three Forecasts From A Busy Week In China

    It has been an exciting week in China. Now that the dust has settled and the renminbi seems once more on a firm footing, it is time to step back and consider what we have learned. We offer four lessons, and three forecasts for what the new renminbi regime portends.

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    Gavekal Research

    Conference Call Following The Renminbi Devaluation

    After the renminbi’s devaluation investors have been left with more questions than answers. In this conference call, Louis Gave assesses the resulting investment scenarios for China and the rest of the world.

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    Gavekal Research

    Emerging Asia’s Nightmare

    The investment case for Asian currencies has been a tough one to make over the last year as stagnant global trade and a stronger US dollar has constrained the growth outlook. Still, until this week’s “renminbi shock”, the region’s reasonable fundamentals and decent yields continued to justify a holding in Asian currencies. After China’s “devaluation”, this risk-reward position has changed as regional currencies look like prime victims of Beijing...

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    Gavekal Research

    Four Lessons And Three Forecasts From A Busy Week In China

    It has been an exciting week in China. Now that the dust has settled and the renminbi seems once more on a firm footing, it is time to step back and consider what we have learned. We offer four lessons, and three forecasts for what the new renminbi regime portends.

    0
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    Gavekal Research

    New Renminbi Policy Cannot Reverse China’s Slowdown

    Weak growth will prompt the government to enact more supportive policies in the months to come, but at best these will stabilize the slowdown. They are unlikely to turn the cycle around. A weaker currency—the renminbi is now down 3% against the US dollar since Tuesday’s surprise policy change—will also do little to support domestic activity.

    0
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    Gavekal Research

    Cutting The Tail Of The Dog

    When docking the tail of a dog there are (in theory at least) two ways by which the offending appendage can be removed: it can be amputated with a single incision, or instead sliced incrementally so that the poor creature barely notices its loss. The same logic applies to economic policymakers when a “tough” decision has to be made. The Thatchers of this world go for a single chop, while the likes of Hollande or Chirac will always plump for...

    3
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    Gavekal Research

    China’s New Exchange Rate Policy

    It looks, at long last, as if China is serious about having a largely market-driven exchange rate. After Tuesday’s surprise move, which saw the People’s Bank of China push the daily fixing of the renminbi against the US dollar down by -1.9% and declare that future fixings would be determined by the previous day’s closing spot rate, the central bank followed through today. Wednesday’s fixing, at CNY6.33, closely matched the prior day’s close, and...

    3
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    Gavekal Dragonomics

    The New Exchange Rate Policy

    It looks, at long last, as if China is serious about having a largely market-driven exchange rate. But ignore the silly headlines about “currency wars”. China’s move has little to do with competitive devaluation and a lot to do with enabling the renminbi’s admission into the IMF’s special drawing rights basket.

    0
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    Gavekal Research

    What Is The PBOC Really UP To?

    The People’s Bank of China sprang a surprise this morning, lifting the daily fixing rate for the US$-CNY exchange rate by 1.9% and triggering an effective 1.8% devaluation of the renminbi—the currency’s biggest one day move since July 2005 when Beijing started its exchange rate reforms. At first glance today’s move looks like a response to months of dismal trade data. In our view, however, today’s exchange rate move is a lot more than a panic...

    10
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    Gavekal Dragonomics

    What Is The PBOC Really Up To?

    The People’s Bank of China sprang a surprise this morning, lifting the daily fixing rate for the US$-CNY exchange rate by 1.9% and triggering an effective 1.8% devaluation of the renminbi—the currency’s biggest one day move since July 2005 when Beijing started its exchange rate reforms. At first glance today’s move looks like a response to months of dismal trade data. In our view, however, today’s exchange rate move is a lot more than a panic...

    2
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    Gavekal Dragonomics

    The Infrastructure Conundrum

    Officials are once again promising to boost public works to support growth. But infrastructure spending is unlikely to accelerate sharply from its already rapid pace. With little pressure on existing infrastructure, it is harder to justify new rail and power projects. And projects that do get built will be at more risk of making poor returns.

    1
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    Gavekal Research

    Capital Account Deficit Is The New Normal For China

    China’s official foreign exchange reserve has declined by US$300bn in the last 12 months, while the capital account deficit has widened significantly. The concern is that as the tide rolls back on a long boom, capital is fleeing the world’s second largest economy. Since China has lots of debt and has seen a sharp economic slowdown in the last two years, such worries are understandable. We have previously offered a contrary take on this view (see...

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  • Gavekal Dragonomics

    Are Multinationals Losing The Chinese Consumer?

    Rising Chinese incomes should in theory be good for multinational companies. But in the automobile market, there are now signs that local Chinese companies are capturing much of the gains from the new stage of consumer spending—a worrying development for multinationals counting on China growth.

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    Gavekal Research

    Growth & Markets Monthly (August 2015) – by Pierre Gave

    Our latest monthly indicators look to have taken on a somewhat schizophrenic character. On the growth side, our main indicator of global economic activity is perking up, implying a stronger second half of the year. But our diffusion index of OECD leading indicators is clearly heading south, as are commodities. A similarly bifurcated story can be seen on the risk-appetite side. Our velocity indicator has registered improvement and short term...

    1
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    Gavekal Dragonomics

    Housing: From Suppression To Support

    After two rounds of relaxing housing policies, China’s authorities have almost run out of ammunition within the existing policy framework. As a result, the authorities are eyeing new tools to support demand: a greatly expanded market in mortgage-backed securities and a housing policy bank to help finance home purchases.

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