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E.g., 25-06-2021
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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...

    1
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    Gavekal Dragonomics

    The Emerging Strategy For Debt

    China’s strategy for managing its mountain of debt is finally becoming clear. This strategy will shape the country’s economic trajectory for years to come, and in particular will have big implications for the bond market. We see interest rates falling, bond issuance exploding, and pressure for capital-account liberalization rising.

    0
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    Gavekal Research

    Embrace The Asian Deflation

    The specter of deflation continues to threaten big chunks of the global economy and the alarm has even spread to China after the GDP deflator was revealed to have slipped into negative territory in 1Q14. Our starting point is that deflation does not have to be some grizzly beast that must end with soup kitchens, for as Charles has forcefully argued, periods of falling prices have in the past been associated with rapid capital formation and...

    0
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    Gavekal Research

    Five Corners (6 May): The Weakness In Wages

    Overview: Charles Gave wonders why in spite of policymakers having the best of intentions, their efforts have caused declining productivity, lower median incomes and fewer quality jobs. United States: The labor market is no longer a clear indicator of the US economic cycle, says Will Denyer, who looks for new insights into what variables may guide the Fed in its policymaking. Europe: Although jobless numbers have fallen across much of the...

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    Gavekal Research

    Growth & Markets Monthly (May 2015)

    While our growth readings ticked higher last month, the big shift came with a sharp rise in our risk appetite indicators. We also note an easing of deflationary pressure with the US breakeven inflation level registering a nine-month high. On the liquidity side, the European Central Bank has cranked up its expansionary efforts and its balance sheet is rising at 16% YoY. Taken together, these moves have benefited equity markets (notwithstanding...

    0
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    Gavekal Research

    The World's Most Crowded Trade

    Markets are made at the margin. As a result, the key driver of prices for a given asset is the question of where the marginal buyer (or seller) comes from. This is why very crowded trades can prove dangerous: by the time every one and their dog is convinced that (i) the euro can only go down (early 2015), (ii) being short long-dated bonds is the single best trade out there (early 2014), (iii) underweighting European equities is the easiest path...

    6
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    Gavekal Dragonomics

    Property Is Still Too Big To Let Go

    While the share of China’s economy driven directly and indirectly by real estate and construction has declined over the past three years, it is still substantial at roughly one-third. This means that the government cannot afford to be relaxed about the housing market as fundamental demand starts a long-term decline.

    0
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    Gavekal Research

    5C China: Policymakers Are Concerned, With Good Reason

    China’s labor market has held up relatively well so far this year despite a pronounced slowdown in growth. But the actions of policymakers and the trajectory of the economy both suggest that there will be more bad news for the job market in the second half of the year. Official indicators of employment in China are patchy, but the published figures have been resilient.

    0
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    Gavekal Dragonomics

    The End Of The Margin Squeeze

    The profits of Chinese industry have not grown since August, but the worst of this crunch now seems to be over. The fall in industrial profits was all but guaranteed by the combination of an extended slowdown in housing construction and the aftershocks of the collapse in commodity prices in late 2014 (see Profits Under Pressure). But thanks in part to the recent stability in oil prices, China’s industrial sector is on course to avoid a worst-...

    0
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    Gavekal Research

    China: QE Or Not QE?

    Press reports that China’s central bank is preparing to launch quantitative easing may give investors the impression that the People’s Bank of China is about to join the ranks of major central banks that have embraced unconventional monetary policies. This impression would be false. The PBOC is certainly in easing mode, but its methods have been, and will continue to be, entirely conventional. With the benchmark deposit rate still at 2.5%, the...

    4
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    Gavekal Research

    The Pros And Cons Of A Bull Market

    In sharp contrast to their approach in 2007, Chinese government officials are actively encouraging the current bull market in onshore equities, repeatedly saying that rising share prices are a good thing for China. We agree that there are definite economic advantages to the run-up in stocks, but it is also worth keeping an eye on the risks.

    3
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    Gavekal Research

    No One Likes To Pay Taxes

    No one likes to pay taxes, and a good few try to find a way around it. Perhaps this is why the US tax code and associated practice notes runs to 74,000 pages. Pretty much everyone feels better equipped to spend their own money than the government, and rightly so (anyone who pretends differently is a hypocrite; or did not earn their money themselves). This is why as people pay more tax there is demand for a clear accounting of the services...

    2
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    Gavekal Research

    Maritime Silk Road Or “String Of Pearls”?

    China’s strategic expansion into the Indian Ocean is causing jitters in both Washington and Delhi. This week Xi Jinping pledged to finance a whopping US$46bn of investments in Pakistan, a large chunk of which will fund a 3,000km “economic corridor” from the Arabian Sea to northwest China. The route will begin at Gwadar, a Chinese-run port near the Iranian border, which Indian security experts fear will become a strategic base for the Chinese...

    0
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    Gavekal Research

    Five Corners (22 April): Global Trade

    Overview: Charles Gave argues that an era of globalization and expanding world trade is coming to an end. On balance, he says this is no bad thing. United States: The negative impact of the strong dollar on US exporters will become clear once disruption from the early year port strikes on the US West Coast clear up according to Will Denyer and Tan Kai Xian. Europe: Europe’s huge trade surplus is purely a German issue. François-Xavier Chauchat...

    0
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    Gavekal Dragonomics

    Trembling Giants

    Political and public pressure is building for an overhaul of China’s state-owned oil companies. China National Petroleum Corp. and Sinopec Group, formed in the 1980s from government departments, are among the largest companies in China and their influence is difficult to overstate (two other state energy firms, CNOOC and Sinochem, are smaller and less powerful). Nevertheless the political winds are now blowing against them and a change of some...

    0
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    Gavekal Research

    5C China: No Mourning For The Death Of Outsourcing

    What is China doing about the loss of a big driver of export growth? Back in the days when total exports were growing at a 20%-plus annual rate, up to half of that growth came from the outsourcing of manufacturing assembly to China (we use processing trade, a customs arrangement used by many outsourcing factories, as a proxy). But the outsourcing boom of the 1990s and 2000s has faded lately. Since 2012, processing trade has essentially stopped...

    0
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    Gavekal Research

    Fuel To The Fire

    As if the flames under Chinese equities weren’t hot enough already, Beijing is busy throwing fuel on the fire. Yesterday the People's Bank of China said it would cut the reserve requirement ratio for banks by 100bp, with an extra 100bp cut for small rural institutions. This is the greatest reduction in RRRs since November 2008 in the depths of the global financial crisis, and unlike the previous cut in February it is not intended merely to...

    1
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    Gavekal Research

    5C Overview: Why The Coming Collapse Of World Trade Should Be Celebrated

    Sustained economic growth has always gone hand-in-hand with a big rise in communications infrastructure. To explain why, assume that a country has two cities, named A and B. At the point that a modern communication infrastructure is built (road, trains, internet) then, in each case, a single line of communication is needed. Three cities implies the need for three lines; a fourth city means six lines. Ultimately, if all the cities are to...

    0
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    Gavekal Research

    The Crocodile Mouth About To Close

    What is the most significant macro event thus far in 2015? Most of our clients would likely answer the collapse in oil prices. Or perhaps the European quantitative easing program and the fall of the euro. Others, more bearishly inclined, may highlight the relentless and tedious process towards Grexit, the underwhelming US macro data or the devastating Middle-Eastern civil war. These are all perfectly valid answers—in fact, we made a number of...

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