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Gavekal Research
Will Denyer, Tan Kai Xian
Nov 25th 2014
Global Central Banks Are Driving Appetite For US Cyclicals
The rebound in US equities since their mid-October trough has been impressive. After giving up almost all its year to date gains in just four weeks, the S&P 500 snapped back even more quickly, ending October at a new record high. Since then, it has extended its advance to notch up a YTD gain of 12%. Yet, until just a few days ago, the relative performance of sectors within the index indicated a degree of caution on the part of investors....
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Gavekal Research
Thomas Gatley
Nov 25th 2014
5C China: Rate Cuts Are No Cure For Weak Capex
As inflation has weakened in China since 2011, the real interest rates paid by corporate borrowers have risen steadily. At the same time demand growth has slowed across the board. Heavy industrial firms in particular—and most state-owned enterprises fall into that basket—operate in sectors suffering from overcapacity with scant top line growth and particularly acute deflationary pressure. It is little wonder then that few are keen to pay higher...
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Gavekal Research
Long Chen
Nov 24th 2014
China's Rate Cut: Diminished Returns
First the Bank of Japan, then the European Central Bank, now comes the People’s Bank of China. On Friday evening the PBOC cut its benchmark interest rates for the first time since July 2012. The direction of the move had long been foreseen, but the timing of the announcement came as a surprise. We had expected concerns over China’s high levels of domestic debt would enable the central bank to resist pressure to cut rates until the first quarter...
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Gavekal Dragonomics
Michael Meidan
Nov 20th 2014
The Great Normalization Of Chinese Oil Demand
China’s investment-heavy and energy-intensive model of economic growth has meant that it accounted for about two-thirds of global oil demand growth over the past decade. This frenzy of building, manufacturing and freight movement resulted in an extra 450,000 barrels of oil, on average, being consumed each day. But as China’s economy eases into a lower growth trajectory and energy-efficiency policies are toughened, oil demand growth could halve...
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Gavekal Research
Arthur Kroeber
Nov 18th 2014
Xi’s Long Game
Summit meetings of APEC, the Asia-Pacific economic cooperation talking shop, rarely produce much of interest beyond a funny group photo of 21 heads of state struggling to look comfortable in ersatz local dress of the host country. But last week’s summit in Beijing, the companion state visit of President Obama, and the subsequent G-20 summit in Australia produced a surprisingly substantial feast of positive news. The deal flow was a testament to...
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Gavekal Research
Joyce Poon
Nov 17th 2014
What If The Yen Falls Another 20%?
Japan’s woeful third quarter performance—the economy contracted at an annualized 1.6% rate, pushing the economy into a technical recession—has killed any remaining expectations that the government of Shinzo Abe will proceed with its original plan to raise the country’s sales tax for a second time next year to 10%. In the absence of further fiscal consolidation, this will leave the prime minister’s ‘Abenomics’ policy to revitalize Japan’s economy...
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Gavekal Dragonomics
Rosealea Yao
Nov 17th 2014
A Creditless Recovery For Housing?
The extended decline in China’s housing sales is finally showing clear signs of reaching a bottom. The latest data show the decline in national property sales narrowed sharply in October, with volumes dropping just 1.6% after a 10.3% fall in September. And the daily transaction figures reported by a number of major cities suggest market activity continued strengthening in November. This improvement is primarily a response to the favorable...
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Gavekal Research
Research Team
Nov 12th 2014
Five Corners (12 November): The Commodity Fallout
Overview: Louis Gave Considers the poor performance of gold mining stocks and wonders if energy companies are set to go the same way.
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Gavekal Research
Tom Miller
Nov 12th 2014
China's Geostrategic Ambition
Xi Jinping is making good on his promise to restore China’s position on the world stage. On Monday, China agreed to slash tariffs on high-tech imports, breaking almost 18 months of deadlock with the US over how to update the WTO’s Information Technology Agreement. In coming to terms, China showed it is willing to work with the US in support of multilateral trade frameworks. But China’s President Xi also used his chairmanship of this year’s Asia-...
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Gavekal Research
Thomas Gatley
Nov 10th 2014
Now That You Can, Should You Buy Shanghai?
After years of frustration, months of speculation and repeated assertions that ‘there is no firm timetable,’ the world’s biggest inaccessible stock market is finally opening up to foreign investment. From next Monday, the Shanghai-Hong Kong Stock Connect program will allow international investors to buy and sell around 560 of the largest A-shares listed in Shanghai directly through their Hong Kong broker, without all the hassle of complying with...
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Gavekal Research
Andrew Batson
Nov 09th 2014
5C China: Slower Oil Demand Is No Puzzle
Are plunging global oil prices sending a signal that something is amiss in the Chinese economy? China is now the world’s largest importer of crude oil, a mantle it recently took over from the US, so changes in its demand should certainly have an impact on the global market. We have heard from a number of investors that China’s weak demand for energy is hard to reconcile with real GDP growth that is still above 7%.
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Gavekal Dragonomics
Ernan Cui
Nov 05th 2014
Consumer Outlook & Thematic Review
As the investment boom of the past decade-plus unwinds, China is shifting to a more consumer-driven economy. So goes the conventional wisdom—but the actual dynamics of consumer spending remain relatively poorly understood. In this concise presentation, we outline both the key drivers of consumption in the aggregate, and a number of important growth themes in consumer spending. In macro terms, we find that the “rebalancing” toward consumption is...
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Gavekal Dragonomics
Long Chen
Nov 04th 2014
Lots Of Capital Flows, No Capital Flight
China may have a mostly closed capital account, but the size of capital flows across its borders are nonetheless very large. So is China now experiencing big capital inflows, or capital outflows? In fact, this question is surprisingly hard to answer, as we see very mixed signals in the latest data. The messy reality is that the scale of both capital inflows and outflows has increased, and both have become more volatile. China’s capital account...
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Gavekal Research
Pierre Gave
Nov 04th 2014
Growth & Markets Monthly (November 2014)
In this edition of our monthly report we note that economic activity continues to register weaker momentum while deflationary pressures remain stubbornly present. On the primary liquidity side, the Fed has ended its quantitative easing program, while the Bank of Japan has committed to a more aggressive policy, which may yet inspire the European Central Bank into similar action. Private sector credit multiplication, or the velocity of money, has...
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Gavekal Research
Louis Gave
Nov 03rd 2014
The True Meaning Of The September October Sell-Off
The World MSCI stands marginally higher than its position on August 1st. So someone who went on holiday for three months might conclude that not much has happened. Yet, in doing so, our Frenchman (for who else takes three month holidays?) would have overlooked an important question that is highly relevant to the here and now. Specifically, why did markets unravel so aggressively in a six week period from early September to mid-October? To this...
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Gavekal Research
Research Team
Oct 31st 2014
London Seminar October 2014 - Anatole, Francois, Tom, Will & Charles
We held our autumn seminar in London on October 28 with Anatole, Francois, Tom, Will and Charles offering their take on the state of the world economy and the outlook for financial markets.
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Gavekal Dragonomics
Andrew Batson, Rosealea Yao
Oct 30th 2014
Housing’s Next Decade
China’s housing market is not collapsing, but it is maturing and will decline. Our model shows that China’s housing demand is past its high-growth phase, and has been bouncing around its peak level since 2011. We project construction volume will decline 15-20% from current levels by 2025, hurting demand for steel and other construction materials.
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Gavekal Research
Anatole Kaletsky, François-Xavier Chauchat, Joyce Poon, Long Chen
Oct 29th 2014
Five Corners (October 29): The Fiscal Imperative
Overview: Anatole Kaletsky explains why monetary policy has become an effective irrelevance and fiscal policy is really the only game in town.
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Gavekal Research
Arthur Kroeber
Oct 29th 2014
The Inexorable Decline Of China's Housing Market
Since the turn of the century, China’s booming housing market has been one of the most important drivers of the global economy. Between 2000 and 2013, annual housing completions tripled. Largely because of the demand from housing and related infrastructure, Chinese steel use quadrupled. Prices of iron ore and many other commodities soared.
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Gavekal Dragonomics
Andrew Batson, Long Chen
Oct 28th 2014
Lies, Damn Lies And The Li Keqiang Index
Even when China’s economic data are bad, there are those who think they should be even worse. GDP growth is now officially just above 7%, and it seems quite likely that the growth rate will dip below that totemic level next year. Still, skeptics of the official GDP numbers point to indicators like electricity generation or steel output to argue that growth is actually much weaker. While GDP is a problematic indicator in all countries, and the...
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