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Gavekal Research
Arthur Kroeber
Jun 08th 2015
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.
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Gavekal Research
Jun 08th 2015
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
Tom Miller
Jun 04th 2015
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...
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Gavekal Research
Jun 03rd 2015
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...
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Gavekal Research
Long Chen
Jun 01st 2015
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.
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Gavekal Dragonomics
Rosealea Yao
Jun 01st 2015
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
Pierre Gave
Jun 01st 2015
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...
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Gavekal Research
Louis Gave
Jun 01st 2015
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.
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Gavekal Research
Joyce Poon
May 29th 2015
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...
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Gavekal Research
Thomas Gatley
May 29th 2015
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...
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Gavekal Research
Andrew Batson
May 27th 2015
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...
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Gavekal Dragonomics
Andrew Batson
May 26th 2015
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.
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Gavekal Research
Long Chen
May 22nd 2015
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...
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Gavekal Research
May 20th 2015
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.
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Gavekal Dragonomics
Thomas Gatley
May 19th 2015
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.
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Gavekal Research
Louis Gave
May 18th 2015
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...
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Gavekal Research
Rosealea Yao
May 17th 2015
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.
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Gavekal Dragonomics
Rosealea Yao
May 14th 2015
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...
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Gavekal Research
Udith Sikand
May 13th 2015
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...
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Gavekal Research
Anatole Kaletsky, Arthur Kroeber, Louis Gave, Will Denyer, Joyce Poon, Tan Kai Xian
May 13th 2015
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.
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