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    Gavekal Research

    Webinar: Global Investment Roundtable, April 2021

    In the long years between the 2008-09 financial crash and the 2020 Covid crisis the US stock market massively outperformed equities in the rest of the world. In recent quarters, however, the US market has lost its edge. Yesterday, Louis, KX and Udith weighed the merits of ex-US equities versus US stocks in a post-pandemic world.

    0
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    Living With The Next Covid Wave

    Global markets are looking ahead to a post-pandemic world, but Covid-19 is still very much with us. Globally, new infection rates have risen sharply since late February, reversing their earlier decline. In the last few weeks, the US has experienced an alarming uptick in infections. The European Union is struggling to contain its latest Covid wave, which in several major countries compares with November’s for severity. And across the developing...

    0
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    Strategy Monthly: The Case For Ex-US Equities

    The US trade deficit cycle suggests the world is heading towards a protracted period of US dollar depreciation. With valuations outside the US relatively attractive, and deglobalization meaning ex-US equities will offer greater diversification benefits in future, investors should consider increasing their exposure to ex-US equities.

    0
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    Gavekal Research

    Abundance And Shortages

    Over decades, investors have gotten used to living in a world of plenty, in which capital, labor, commodities and knowledge have all been in abundant supply. Today, however, while the world remains awash with cheap capital, there are signs that the supplies of labor, commodities and—most ominously of all—knowledge may be facing tightening constraints. In this paper, Louis asks whether, after years of abundance, the world may be facing a...

    2
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    Who Will Buy India Now?

    On Tuesday, the US dollar index hit a five-month high and treasury yields maintained their relentless march higher. On the same day, the Indian rupee—this year’s best performing emerging market currency—plunged to a one-month low. A mix of tighter financial conditions and a worsening Covid-19 situation has investors reassessing the surprising notion of India as an EM haven. They are right to do so, for the macro tailwinds driving the rupee’s...

    0
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    When Will Borders Reopen?

    Even as a new Covid wave sweeps across Europe, the European Union has gotten to work on a Digital Green Certificate to allow resumption of travel, within the bloc and beyond. Health passports that securely document vaccines and test results for travelers are key to opening up borders again. But as Tom explains, getting countries to agree on rules and standards will be a painful slog.

    0
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    Gavekal Research

    Video: Pushing Less Hard On The String

    Concluding a long-awaited policy review, last week the Bank of Japan signaled that after almost a decade of pursuing titanic quantitative easing targets, it will be looking to make fewer asset purchases from now on. In this short video interview, Udith weighs the implications for Japan’s economy, its bond market, the yen, and Japanese equities.

    0
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    Weak Links No Longer

    Once upon a time, a steep rise in US yields coupled with capital outflows—like those we’ve seen in recent weeks—would have led to intense financial stresses in Asian emerging markets. Weak-link economies with fragile fiscal positions and precarious external balances would have been vulnerable to abrupt sell-offs and destabilizing currency depreciation. As sentiment swung risk-off, investors would have gotten badly trampled in the rush for the...

    0
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    When Currencies Misbehave

    In recent days, investors have had to absorb a series of troubling headlines from Europe, yet news that should be either bearish for the euro or bullish for the dollar failed to keep the euro from gaining last week. Meanwhile, the yen continues to grind lower. Why is that, and what does the inability of the dollar to rally tell us about the future?

    6
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    Gavekal Research

    Webinar: The Shape Of India's Recovery

    With the release of pent-up demand and more fiscal spending, India's economy is rebounding sharply. Its growth potential is also being raised by a new push towards privatization and an industrial policy that supports manufacturers. The question is whether India can overcome institutional lethargy and make these policies work. Tom and Udith addressed such issues and the latest market developments impacting sub-continent assets.

    0
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    Is The Belt And Road Turning Green?

    China is trying to clean up its domestic energy sector, but critics accuse it of exporting an outmoded and dirty energy model around the world under the guise of the Belt and Road Initiative. In 2019, Xi Jinping pledged to turn the BRI “green and clean.” Tom argues that there may have been a moderate shift towards green energy, but not a decisive one.

    0
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    Gavekal Research

    Gold, Renminbi Bonds And The Clash Of Empires

    As the US expands its deficits to pay for pandemic relief, emerging economies that use the US dollar for reserve backing have reason to fret. China is being incentivized to accelerate development of the renminbi as both an international standard and store of value. Louis, Charles and Didier offer a potential roadmap for how renminbi internationalization may unfold.

    16
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    Gavekal Research

    Updating The Malthusian Constraint

    In June 2019, I argued that big shifts in the US economy and financial markets largely result from changes in the relative price of energy. If oil prices are rising faster than nominal GDP, this points to energy shortages and more of the economy’s value-added going as the “miners’ rent”. This situation points to rising inflation and contracting price/earnings ratios.

    3
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    India Macro Update: Reading The Recovery

    India is enjoying a V-shaped recovery and there are hopes that high fiscal spending and favorable base effects can push GDP growth above 10% in the coming fiscal year. The problem is that the private sector remains weak after a savage Covid-19 experience. Udith and Tom digest the macro currents and on balance conclude they would rather be in Indian equities than bonds.

    0
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    Webinar: Global Investment Roundtable, March 2021

    As Covid-19 vaccinations are cranked up and Congress gets ready to dole out stimulus measures, US growth expectations have risen along with inflation concerns. In response, bonds have sold off and equity markets have shuddered. In our monthly global investment roundtable, Gavekal partners discussed this confluence of events and addressed what it means for risk assets.

    0
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    Video: Will Bond Yields Topple Asia's EMs?

    Rising treasury yields are rarely a good thing for emerging markets, as this implies tighter financing conditions. The good news of sorts is that Asia's external position is strong due to buoyant exports, yet domestic demand has been constrained by the pandemic and a slow vaccine rollout.

    0
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    India’s New Industrial Policy

    Industrial policy is back in vogue, especially in India. Prime Minister Narendra Modi’s government will spend US$27bn on subsidizing manufacturing, as it seeks to forge a “Self-Reliant India.” Given India’s unhappy history of chasing self-sufficiency, this raises concerns. Yet “self-reliance” does not necessarily mean protectionism, argues Tom.

    0
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    Gavekal Research

    Strategy Monthly: The Threat Of Rising Inflation And Yields

    The roll-out of vaccines in the US is upending the investment environment, as the focus shifts beyond the pandemic to full-throttled economic recovery. With both monetary and fiscal policy set to remain loose, nominal growth could soon rip. Hopes for “normalization” have driven up inflation expectations and freaked out bond investors. Those getting fixed interest are right to be unnerved, as production capacity is fairly tight, inventories are...

    0
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    Gavekal Research

    Emerging Markets And Rising Yields

    As 10-year US treasury yields have pushed higher, investors have begun to reassess their enthusiasm for emerging market assets. Historically, rising US yields has seldom been accompanied by emerging market outperformance. Yet rising US yields are not necessarily negative for EMs, and there are reasons to think this time may well be different, at least for some EMs.

    0
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    Gavekal Research

    A Discussion On Treasury Yields

    In recent days, long-dated US treasury yields have made a clear move higher. Unless there’s a violent turnaround in the coming days, February will mark the seventh consecutive month of flat-to-negative returns for treasuries This is an important development, with potentially far-reaching investment implications. Anatole and Louis discuss the outlook for yields, and the consequences for asset prices.

    11
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    Gavekal Research

    Webinar: Emerging Markets In The Next Phase Of The Pandemic

    Emerging markets have had a strong run, fueled by floods of stimulus in developed markets. Much of that money has flowed to Asia, where export sectors have thrived on rich-world consumers’ demand for electronics and other goods. The question is whether Asian EMs will be able to keep up this outperformance as they lag far behind in the vaccination race. Our team addressed these issues, and considered whether commodity-based EMs can again have...

    0
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    Geared To Global Recovery

    Since the global recovery trade got going at the beginning of November, Japanese equities have performed respectably, returning some 24% in US dollar terms. But they have not outperformed. This is disappointing. With high operating leverage—the ratio of fixed to variable costs—and more than half their revenues generated overseas, Japanese corporates should be a clear play on global recovery. Indeed, the consensus-beating 3% QoQ rise in Japan’s...

    0
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    Gavekal Research

    China Versus The Anglosphere

    Beijing’s ability to weaponize its global trade power is concentrating minds from Washington to Canberra. On Tuesday it was reported that China has proposed controls on the production and export of rare earths. This threat is the latest example of why reducing critical dependence on Chinese trade is now a strategic priority for many countries, in particular those in the Anglosphere.

    13
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    Gavekal Research

    The Importance Of Taiwan

    Across Europe and the US, car plants are getting shuttered because of a shortage of microchips from Asia. This storm is centered on Taiwan, which for decades has been an unsung contract supplier of electronics and chemicals. For those who had not noticed, its firms now dominate high-end global chip production and current industry dynamics mean this grip is only likely to intensify.

    4
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    Gavekal Research

    A New Super-Cycle?

    A surge in commodity prices has led to hopes for a new “super-cycle”. Bulls say that commodities have been in the doghouse for a decade, ensuring limited new capacity additions, yet demand is now getting supercharged globally by easy monetary and fiscal policies. Bears retort that commodity investors have a case of the vapors, as the next phase of global growth, especially in China, will be less resource-intensive.

    5
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    Gavekal Research

    Vaccines, Efficacy And Variants

    Despite volumes of new information and the lightning creation of vaccines promising a path out of the pandemic, uncertainty remains. Almost daily we are bombarded with a mix of good news (the vaccines work really well!) and bad (new mutations resist vaccines!) that make it hard to know whether we should rejoice or despair. This note provides a framework for assessing these persistent uncertainties.

    1
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    Gavekal Research

    Video: An Indian Blowout?

    Indian risk assets have ripped in response to last week's big-spending budget, and reports that a collapse in Covid-19 cases points to the country having achieved "herd immunity" ahead of max vaccinations. In this video, Udith considers both India's public health situation and the chances of fiscal stimulus kick-starting growth without spurring an adverse financial reaction.

    0
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    Gavekal Research

    Webinar: Uncharted Territory And Portfolio Construction

    Charles has sought to codify his many investment rules into a rigorous portfolio construction framework, which includes identifying periods when returns stop being normally distributed and move into the "tails". Right now markets could be going through a phase change, and in this webinar, he explained why. He was joined by Didier, who who heads the quant team in Paris, and Louis.

    0
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    Gavekal Research

    Six Reasons To Stay Bullish

    Is the recent speculative mania the beginning of the end of the post-2009 bull market in stocks? Or is it only the end of the beginning? Anatole argues that today’s speculation is reminiscent of the later stages of dot-com bubble, but he remains a confirmed bull on global equities. In this paper he offers six reasons why this is no contradiction.

    5
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    Gavekal Research

    The Other Emerging Markets

    Until hit by a wobble in late January, emerging markets enjoyed heavy portfolio inflows over the last several months, and there are signs the risk aversion wobble is fading. Although the macro picture favors the currencies of Asia’s manufacturers, other less prominent forces could cause the currencies of non-Asian, commodity-exporting emerging markets to outperform.

    0
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    Gavekal Research

    India’s Go-For-Broke Budget

    Indian equities have risen 7.6% in the last two days, after the government of prime minister Narendra Modi threw fiscal caution to the winds in the 2021-22 budget it presented on Monday. India will attempt to spend its way out of economic crisis, with a five-year plan for deficit-fueled growth. “We have spent, we have spent and we have spent,” said finance minister Nirmala Sitharaman, after announcing big increases in capital expenditure with no...

    3
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    Gavekal Research

    Vaccine Slippage

    It is looking likely that most countries will miss their Covid-19 vaccination targets for 2021. This creates a risk of slower than expected economic growth, especially in Europe which take half a year to emerge from its double-dip recession. Moreover, any activity dependent on international travel or large-scale gatherings will remain severely depressed until well into 2022.

    3
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    Gavekal Research

    Supply-Chain Risks For The Covid Vaccine

    The race to vaccinate the world in the wake of the Covid-19 pandemic will be one of the most complex projects ever attempted. Most developed economies aim to fully vaccinate their adult population by year’s end. Dan outlines the manufacturing and logistical challenges involved the vaccine rollout

    0
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    Gavekal Research

    Risks In The Biden Era

    In December, Anatole outlined 10 disparate risks that could derail the bull market in 2021. That was before the Democrats won full control of the US government, paving the way for approval of Joe Biden’s new super-size stimulus package. In light of the developments over the last month, Anatole reassesses his 10 risks.

    9
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    Gavekal Research

    The Turn In Asian Inflation

    Over the last year, a collapse in oil and commodity prices slashed inflation in Southeast Asia and buoyed real interest rates. As a result, regional central banks were able to cut policy rates and mitigate the impact of massive Covid disruption. However, this disinflationary tailwind is set to abruptly reverse in the coming months as inflationary pressure inevitably builds up. Ultimately, this rise in prices may wash through the system as a “...

    0
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    Gavekal Research

    Video: The Good And Bad News For Emerging Markets

    US president Joe Biden’s planned US$1.9trn fiscal support package for the American economy may provide a metaphorical shot in the arm for at least some emerging markets, partially offsetting the negative economic effects caused by the delayed rollout of actual coronavirus inoculations. Udith assesses the conflicting forces affecting emerging economies.

    0
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    Gavekal Research

    The Logos, Idiotes And Demagogues

    Charles revisits the idea of the Greek "logos", "idiotes", demagogues and citizens, and how the Greeks believed that those who controlled the logos—the language used to describe the world—ipso facto controlled the political system. Problems arise when a new, competing logos started to emerge.

    8
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    Gavekal Research

    Flows Will Still Favor Indian Equities

    Indian cows tend to be scrawny beasts, but India’s equity bulls have rarely looked fatter. Stocks scaled record highs last week after a 10-week binge on easy foreign money. The feeding frenzy has faded since Friday, but local benchmarks remain up 25% in US dollar terms since the start of November, and foreign investors’ appetite for Indian assets does not yet look sated. While the vigorous rebound in India’s economy from last summer’s slump may...

    0
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    Gavekal Research

    Biden’s United Front Against China

    As the outgoing Trump administration exits with a flurry of executive actions directed against China, Beijing is not sitting around hoping for Joe Biden to spark a new era of détente with the US. The recent tightening of control in Hong Kong shows that President Xi Jinping has no intention of giving an easy early ride to a leader who has pledged to build a “united front of US allies and partners” to constrain a resurgent China. The European...

    1
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    Gavekal Research

    The Paradox Propelling Asian Currencies

    This year, the world is likely to see a sharp bifurcation in economic performance. In developed economies, mass vaccination programs enable a return to economic normality, while in emerging markets, vaccine supply and distribution problems will slow recovery. Paradoxically, EM economic underperformance will favor the outperformance of emerging Asia’s currencies.

    2
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    Gavekal Research

    Strategy Monthly: Darkness Before Dawn? The Covid Vaccine Outlook

    As a new wave of Covid infections grips major economies, and social restrictions return, the hopes for a return to pre-pandemic normal rest on the rollout of vaccines. With vaccine production ramping up, most developed economies could reach herd immunity by late in 2021. But many emerging economies will take longer, and several risk factors could still derail the rollout.

    0
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    Gavekal Research

    Portfolio Construction Over The Next Two Years

    On Thursday, Anatole set out his view that undivided Democratic Party control of both the executive and legislative branches of the US government opens the door for unconstrained Keynesian stimulus, which will be highly positive for the US economy and equities. It will probably come as little surprise to Gavekal clients that I should dispute whether such unconstrained Keynesianism will be good news either for the economy or for US equities

    4
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    Gavekal Research

    Gravity Or Liquidity? Which Will Win In 2021?

    In hindsight, 2020 showed that if three conditions are met, a stock can break free from the earth’s gravity, and lift off for destinations only sci-fi writers could have imagined. Consequently, one of the most important questions for investors in 2021 is whether such inter-galactic travel can continue. Or will the coming year instead see a shift in investor behavior, with gravity once again exerting its downward pull?

    5
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    Gavekal Research

    Goldilocks And The 10 Bears Of 2021

    In recent years Anatole has written a series of articles describing 10 key risks for investors. He readily accepts that this year’s exercise was rendered redundant by the emergence of Covid-19 in January. Next year, however, he believes that a greater range of factors could weigh on markets and in this piece assesses them one by one.

    0
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    Gavekal Research

    The Boom Of 2021

    As he gazes into next year, Charles has reviewed some of his most trusted indicators and found that the US is moving towards an inflationary boom that should mean stronger growth, rising inflation and higher bond yields. If the Federal Reserve acts to crimp this adjustment in the price of money, he warns that the US dollar could tank.

    10
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    Gavekal Research

    The Lure Of Korea In A Rotation

    Hopes for a return to normality as Covid vaccines get rolled out have helped fuel a global rotation from growth to value equities, and from previous “Covid winners” to “Covid losers”. Due to its better pandemic management, clear policy headroom and exposure to the electronics sector, Asia has generally been a Covid winner. Hence, Udith Sikand and myself have argued that beaten-up non-Asian markets are the way to play this rotation (see Asia’s...

    0
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    Gavekal Research

    The 10 Important Changes Of The Past Year

    Two years ago, 10-year treasury yields were falling (and trading below their 200-day moving average), oil prices were falling (and also below trend) and the US dollar was rising (and trading above its trend level). Today, the situation has reversed for all of these anchor prices in the global system. This profound change can be explained with reference to 10 tectonic shifts in the global economy.

    1
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    Gavekal Research

    The Real Bubble

    The older I get, the more I am convinced that the economy is nothing but energy transformed. Since the beginning of the industrial revolution, the story of the economy has been one of constant movement from not very efficient sources of energy, such as wood and then coal, to more “dense” and efficient sources, such as oil and nuclear fission, with the aim having been to arrive eventually at nuclear fusion.

    22
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    India Macro Update: Long Road To Recovery

    India’s economy is starting to recover through a process that will be slow, painful and uneven. Growth may resume this quarter, but the economy is still on course to shrink by around -10% in the current fiscal year. The Covid-19 situation has stabilized and vaccines should soon be rolled out, yet local restrictions may feature right through next year. The government may finally ramp up fiscal spending, which should aid near-term growth prospects...

    0
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    Asia’s Fully-Priced Winners

    In the league table of Covid winners and losers, emerging Asia’s equity markets rank among the winners. The perception among international investors is that East Asian societies handled the outbreak better than Europe and the US, and better than non-Asian emerging economies. On top of that, Asian governments rolled out unconventional monetary and fiscal support relatively early, and regional exporters have benefited from solid external demand...

    0
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    Asian Bonds Remain Attractive

    Two weeks ago, the central banks of Indonesia and the Philippines each lowered their policy rates by 25bp, making their first rate cuts since the summer. Although the moves came as a surprise to the markets, they should not have done. Across Asia real interest rates are generally positive, and in some cases are above their long term averages, while inflation rates are modest. This gives central banks plenty of room to reduce nominal rates to...

    0
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    Gavekal Research

    A Bridge Too Far?

    The Reserve Bank of New Zealand was the first central bank to successfully argue that being independent from government direction would let it foster better economic outcomes. Yet the RBNZ still seems one to break down barriers—or perhaps have them broken down for it. On Tuesday the Kiwi finance minister proposed that control of house prices should be added to its inflation remit.

    14
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    The Realignments Begin

    It was no coincidence the first-ever visit to Saudi Arabia by an Israeli prime minister took place a day before US President-Elect Joe Biden announced his choice of Antony Blinken as Secretary of State, indicating a conciliatory stance towards Israel and Saudi's mutual enemy Iran. It was, however, coincidence that the price of oil should advance to its highest since early March on Tuesday.

    0
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    The Scars Beneath India’s Cheer

    As India celebrated Diwali this month, there was some reason for cheer on the economic front. After a deep downturn, demand has picked up, the economy is primed to return to growth in the fourth quarter, and the manufacturing sector is firing on all cylinders. Nevertheless, the scars from this year’s contraction will take a long time to heal.

    1
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    The Upside For Asian Currencies

    As global uncertainty has started to recede following the US election result and on the promise of effective coronavirus vaccines, so the skies have begun to clear for Asian currencies. Recently the components of the East Asia ex-China currency complex have begun to appreciate across the board at an accelerating rate. The conditions are ripe for this to continue.

    4
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    Are The Markets Trying To Tell Us Something?

    I am not a technical analyst, but I am an avid consumer of charts, which I often use to check if my overall view is confirmed, or not, by the markets. Having undertaken this exercise recently, I have two strong convictions.

    2
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    After RCEP: A Tough Ask For Pivot 2.0

    On Sunday, China signed the Regional Comprehensive Economic Partnership. With the 15-nation trade agreement, Beijing has successfully positioned itself at the center of the region’s trade and investment networks. This will make it hard for US President-Elect Joe Biden to fulfill his pledge to place “America back at the head of the table” in international relations, at least in Asia.

    3
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    Webinar: US Election & Global Investment Roundtable (in French)

    Charles Gave, Louis-Vincent Gave, Didier Darcet and Cedric Gemehl delved into the results of the US election, and discussed the latest impact of Covid-19 on the global economy and markets. Additionally, they presented Gavekal’s latest research on portfolio construction.

    0
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    Gavekal Research

    The Three Key Prices: 10-Year Treasury Yields

    A core thesis for Louis is that in financial markets three prices matter above all others: the price of oil, the price of US dollars and the yield on 10-year US treasuries. In this second part of a three-part series, he addresses the bond market question. US treasuries are currently pricing in a highly deflationary future on both a cyclical and structural basis. Such an outcome would defy recent experience in the US bond market.

    4
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    Webinar: Divergence In Emerging Markets

    Emerging markets have had very different pandemic experiences and the effects are showing up in economic data and market performance. Northeast Asian economies offer strong growth opportunities while southeast Asia is muddling through in a way that favors bond investors. The good news in Asia is that struggling economies such as India and Indonesia are pursuing reform initiatives. The picture is less rosy in Latin America, while Turkey offers...

    0
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    Gavekal Research

    Different Strokes For Different EM Folks

    Last spring, key beneficiaries of the rich world’s fiscal and monetary largesse were emerging market economies, which enjoyed unprecedented policy flexibility that gave broad-based, if not universal, financial relief. The next turn in this crisis is, however, unlikely to float as many boats, as shown by divergent inflationary trends across EM economies.

    0
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    Gavekal Research

    Webinar: Understanding Chinese State Capitalism

    The advance of the private sector and the retreat of the state sector has been central to China’s long transformation from an isolated socialist nation to a globally connected economy. Yet the notions of China’s private sector being either in the ascendency, or facing a squeeze in the statist Xi Jinping era are not born out by the facts. Andrew Batson discussed the findings in his recent major piece of research on this topic.

    0
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    Gavekal Research

    The Three Key Prices: Oil

    In financial markets, there are three prices matter above all: the price of the US dollar, the yield on 10-year US treasuries, and the price of oil. Get the direction of these right, and the other pieces of the investment puzzle fall into place. In the first of a three-part series, Louis examines in depth what could cause the oil price to break out of its current trading range.

    6
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    New Tech, Same Fiat Money (For Now)

    This week saw seven western central banks and the Bank for International Settlements issue a joint report on central bank digital currencies. They come not to bury cash nor to undermine banks, but to modernize payments for a digital age. If so, the introduction of CBDCs is unlikely to upend the banking system and monetary policy, but would resemble the rollout of ATMs in the 1960s.

    2
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    Gavekal Research

    A Typology Of Bear Markets Based On Wicksellian Analysis

    In half a century of doing financial analysis, Charles has acquired the core conviction that there is not one type of bear market, but two. Think of these as the gentle black bear-type downturn that is survivable and the highly-dangerous, big brown grizzly collapse that for many money managers proves fatal. In this piece, Charles seeks to map this insight with some analytical rigor.

    7
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    Gavekal Research

    Webinar: Global Investment Roundtable, October 2020

    Yanmei Xie discussed the US team’s assessment of risks surrounding the US election, Anatole Kaletsky explained the reasons for his return to bullishness and Louis Gave talked about global asset allocation and how to find “anti-fragile” assets.

    0
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    Gavekal Research

    Not Quite A Game-Changer

    Earlier this week, Indonesia passed a sweeping “omnibus law” aimed at attracting foreign investment by lowering taxes, reducing labor costs and cutting red tape. In pushing through the new law, president Joko Widowo hopes to capture a slice of Asia’s shifting manufacturing-for-export business, as regional supply chains migrate away from China.

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    India Tackles Rural Reform

    Against an awful economic backdrop, Indian policymakers are pushing through long-awaited reforms to open up agricultural and labor markets. In theory, the reform package should boost competition among buyers, create a national market in farm produce, and help to modernize agriculture by attracting greater private investment.

    3
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    Asia’s North-South Covid Divide

    If anywhere has been a winner from the Covid-19 pandemic, it is east Asia. Compared to other big regions, it has suffered lower infections, fewer deaths and incurred less economic damage. However, that generalization simplifies a big difference between its northern and southern regions, which have had quite different experiences that is also impacting the investment arena.

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    The Trouble Brewing In Thailand

    Thailand is no stranger to political discontent. But the mounting street protests of the last few months are different. Not only do they unite former rival factions, for the first time the monarchy is a target of popular criticism, and these demonstrations are taking place against the backdrop of an economy hit disproportionately hard by Covid-19.

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    EM Currencies At A Pivot Point

    Emerging market economies are heavily impacted by their currency’s level against both the US dollar and the Chinese renminbi. As the dollar is a funding currency, most EMs thrive when it is weak. In contrast, China is both a competitor and a key export market for EM economies, and so a weak renminbi poses a deflationary threat. Since late May, emerging markets have faced the ostensibly benign situation of a weaker US dollar and a stronger...

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    Asia’s Winners In The US-China Tech War

    The US government has stepped up its campaign against China’s leading technology companies, and already the measures against Huawei are taking effect. This threatens to severely disrupt global electronics supply chains, but creates opportunities for companies elsewhere in Asia. Vincent assesses who stands to benefit.

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    Webinar: Embattled India

    India has taken a bigger economic hit from the pandemic than any other major economy, exacerbating a slowdown that was already underway. In addition, India is engaged in a high-stakes standff with China over its Himalayan border, which may force an economic decoupling of the two countries.

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    The Challenge Of Valuing Gold

    Gold ranks as the ultimate “scarcity asset”, as its value is dictated not by its utility but because it is rare. Valuing such assets is tough as there is no “underlying value” to reference and prices are driven by the immediate supply and demand situation. Yet, in periods when both government budget deficits and monetary aggregates have rapidly grown, gold has historically outperformed—and it is doing so now.

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    Of Gold And Gold Miners

    In recent weeks, attention has focused on the surge, and subsequent correction, in US technology stocks. Yet an asset class that has greatly outperformed the Nasdaq 100 this year is gold-mining equities. In this piece, Charles seeks to develop firmer investment rules for managing gold and gold-mining stocks within a portfolio.

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    Webinar: From Bearish To (Conditionally) Bullish

    Anatole and Will presented their views on the efficacy of US fiscal and monetary policy in response to the Covid crisis, and outlined the prospects for the economy and asset markets.

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    Pained Tales From The Hills

    On Monday, for the first time since 1975, gunshots were fired on the disputed Himalayan border between India and China.Hundreds of incidents occur along the undemarcated Line of Actual Control every year, but this year’s skirmishes are the most dangerous for at least five decades.

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    India Macro Update: The Great Covid Crash

    India has taken a bigger economic hit from the pandemic than any other major economy. After reopening its economy in June, business activity is again weakening as the surging number of Covid-19 cases raises the chance of more localized restrictions. Udith and Tom evaluate the government's response and give a prognosis for the economy.

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    Webinar: Global Investment Roundtable (in French), Sept 2020

    In a turbulent economic environment, Louis sought to identify assets with “anti-fragile” qualities; Cedric deciphered the message from European markets; Didier Darcet refreshed refresh an old Gavekal framework with “Four Quadrants 2.0” and Charles moderated the discussion.

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    Desperately Seeking Anti-Fragility (Part II): In The Eye Of The Beholder

    Previously, Louis outlined the four asset classes that investors appear to regard as anti-fragile, now that US treasuries no longer fit the bill. With each of these four asset classes enjoying a roaring bull-run, today Louis examines the typical life cycle that lifts an asset class from unloved hell to anti-fragile heaven.

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    Webinar: Global Investment Roundtable, September 2020

    Charles Gave, Louis Gave and Will Denyer joined Arthur Kroeber at the global investment roundtable to discuss what's going on in the global economy. Charles identified three big trends that will affect the investment environment in the long term, Will gave an in-dept update on the US economy, and Louis examined where to find assets with “anti-fragile” properties.

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    A Little Battler Soars Too High

    A weak US dollar is generally a boon for both global growth and asset prices, yet its recent fall has ruffled feathers. So spare a thought for the Reserve Bank of Australia, which is not only presiding over the country’s first recession in 30 years but is getting no help from its “little battler” currency, which has rocketed 27% against the US dollar since its March low.

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    Why I Was Right To Turn Bullish

    Previously, Anatole tried to explain why he had abandoned the bearish view on equities. We will not know for a long time whether any of his explanations make sense, but Jerome Powell’s speech about the Federal Reserve’s new operating philosophy bolstered his confidence in a once-in-a-generation economic regime change.

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    Strategy Monthly: Eight Questions, 11 Answers

    With US equities once again at record highs and the Fed promising to keep rates nailed to the floor, it is time to ask hard questions of the bull market that won’t die. That interrogation is conducted by Charles and Louis Gave. In these strange times, the case for owning anti-fragile assets has rarely been stronger, they contend. Four stand out for having weathered the pandemic and should be treated seriously.

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    Video: Covid-19's Investment Implications For Asia

    Asia has handled the pandemic decently well and its solid macroeconomic fundamentals means it does not face any kind of solvency crisis. The problem for investors is that the growth outlook remains pretty grim, with limited prospects for a swift improvement. As a result, investors should stick with local currency bonds, which look well set in this environment.

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    The Model Pupil Still Has Problems

    Asia is seen as having had a “good” Covid-19 crisis, as it learnt vital lessons from the 2003 Sars outbreak and its policymakers have been typically more frugal than their Western peers.The problem with such generalizations, argue Udith and Vincent, is that they conceal huge discrepancies among countries.

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    The Perfect Asian Proxy

    The Federal Reserve’s new policy framework seems set to keep US monetary policy easier for longer, with the main victim being the dollar. Asian currencies now look well primed and the question for investors is how to play this trend given the very different experiences being had by regional economies. Fortunately, there is a simple answer: just buy the Singapore dollar.

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    Japan Drifts Toward Change

    This week Japanese prime minister Shinzo Abe went into hospital for medical tests, sparking fresh reports that he may soon step down on health grounds. Should Abe exit the scene it is unclear who will succeed him. If a leadership change becomes unavoidable, Abe will likely play a key role in anointing his successor, so there is unlikely to be a big shift in the “Abenomics” program anytime soon.

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    Keep Chasing Asian Yield

    As US equities brush up against new highs and safety assets like gold and treasuries sell off, global risk appetite has risen this week. Investors are betting that a vaccine for Covid-19 is at hand and if not, the world is at least learning to live with the virus. A potential beneficiary of this situation may be Asian bond markets, where quite decent yield can still be had.

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    Building A New System

    On Monday, Charles argued that developed economies’ moves to nationalize both the creation of money and the distribution of credit would degrade the unit-of-account function played by fiat currencies in many markets. Today, he outlines new monetary mechanisms that are likely to replace, or at least live alongside, fiat currencies.

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    Emerging Markets And The Dollar

    A weakening US dollar is usually an unalloyed positive for emerging markets, so it is no surprise that their assets have rallied since the March 23 bottom in global markets—equities are up 45%, while bonds (both US dollar and local currency-based indexes) have gained 20%. Happy days indeed, but the next stage of the EM rally is likely to be more exacting for investors.

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    Not All Tech Markets Are Created Equal

    Aided by lockdown effects, Big Tech has rolled out some stellar results. Self-isolating consumers have replaced devices and devoured cloud computing services, spurring a new upgrade cycle. Such demand has boosted Asia’s tech supply chain, but surging hardware demand is about to become more specific, with some segments facing excess supply and others sustained tightness.

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    Webinar: Global Investment Roundtable, July 2020

    In our monthly Global Investment Roundtable, US analyst Tan Kai Xian analyzed the latest US data and assessed the risk that the present economic stall-out turns into a double-dip recession. Arthur Kroeber explained why the Trump Administration has amped up its Cold War rhetoric on China. Anatole Kaletsky tied it all together and tried to explain the recent movements in global markets.

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    Indian Banks On The Block

    As India's economic and fiscal situation goes from bad to worse, the government is preparing to do the unthinkable: privatize state-owned banks. Ever since the first round of nationalization of private lenders in 1969, the state has kept a tight grip on the financial system. Now it reportedly plans to sell its majority stake in six banks, hoping that an infusion of private capital and managerial skill can nurture them back to health.

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    Do Bubbles Predict Or Project?

    With the second quarter data season now in full swing, the rebound in equity prices that followed the Covid-19 panic seems to have stalled. So, what happens now? In this piece, Anatole follows up on Louis’s recent efforts to define reasons for the surge in equity values and proposes a fresh explanation centered on the nature of bubbles.

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    The Consequences Of ‘Worthless Cash’

    In the second quarter of this year, global equity markets registered their best quarterly performance in two decades. In this, the third paper of a series about the record-breaking rebound, I will consider the possibility that the present growth in monetary aggregates is leading investors to conclude that they have no alternative.

    5
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    Toward A Renminbi-Gold Standard

    As the international trading and monetary order of the last 50 years continues to crumble, the endgame must be the US dollar losing its lofty position at the apex of the system. Louis and I have argued that this process began in and around 2005 as the US moved to “weaponize” the dollar, thereby ensuring the renminbi’s emergence as a competitor.

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    Unpicking The Tourism Effect

    Despite a worsening Covid-19 situation in many big developing economies and concerns over central banks’ monetization responses, emerging market investors continue to climb the wall of worry, betting that a putative “second wave” does not stymie the recoveries of developed economies and China. But another challenge for EM economies is a collapse in foreign tourism.

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    Video: Singapore's Policy Path

    Just days after securing another five years in power at the ballot box, Singapore’s government announced that the island republic’s gross domestic product contracted a worse-than-expected -12.6% year-on-year in the second quarter. However, with large accumulated fiscal reserves, the government has considerable scope to spend in order to stimulate Singapore’s economy.

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    Oil’s Unintended Consequences

    On Wednesday, ministers from the Opec+ oil exporting cartel will meet to decide whether to begin scaling back their production cuts, but with the prospect of a renewed increase in infection rates, it's safe to say they will adopt a cautious approach. More interesting is whether they will err on the side of excess caution, causing the oil price to rise.

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