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    Gavekal Research

    Assessing EMs Vulnerability To The Trump Trade

    Emerging markets have faced selling pressure since Donald Trump’s US presidential election win started to drive treasury yields higher. EM debt funds saw their largest ever outflow the week after the election, while currencies have fallen on fears of trade protectionism and more talk of the US dollar being primed for a 1980s-style super-spike. Given this basket of worries, Joyce revisits her “emerging market relative balance sheet vulnerability...

    0
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    Gavekal Research

    How Bad Is The Dollar Squeeze?

    This has not been your regular dollar squeeze. Over the last month, the cost of obtaining US dollars offshore has soared to levels last seen in “crisis” periods, yet bank equities have rallied the most in six years. Rather than a new crisis unfolding, we seem to be transitioning to a macro environment where dollars are structurally scarce. This will be challenging for weak link economies, as shown yesterday by adverse market moves in Brazil and...

    2
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    Gavekal Research

    Something's Gotta Give

    Louis Gave held a conference call on December 6 where he discussed the state of global markets as the US gets ready for a Trump presidency. The fundamental challenge for investors is that while equities and the US dollar have rallied strongly and bonds have sold off in a “Trump reflation trade,” it is not clear how long that trade can withstand the reality of Trump’s economic program.

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    Gavekal Research

    A New Tech Cycle?

    Weak Japanese exports for October were not a big surprise given that the yen has been strong and global trade remains lackluster. Yet buried within recent (dreary) trade releases is evidence pointing to a new semiconductor investment cycle. The first signal, from official data at least, came in Japan’s 3Q16 GDP report which showed growth at 0.5%, versus an expected 0.2%, with the difference explained by exports of electronic components and...

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    Gavekal Research

    Hong Kong Seminar — November 2016

    Arthur Kroeber presented his thoughts on the outcome of the US election, as well as an analysis of China's leadership politics. Will Denyer presented his thoughts on the US economy. Tom Miller gave an optimistic take on reforms in India under Modi's government.

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    Gavekal Research

    Why So Calm In Emerging Markets?

    Historically, a strengthening US dollar has been bad news for emerging markets; just think of the Asian crisis of 1997. And rising US long rates do not exactly help; consider the taper tantrum of 2013. Put them together then, and throw the prospect of greater trade protectionism into the mix, and the current global environment should be absolutely toxic for emerging market assets. Yet despite considerable local pain, notably in Mexico, the...

    1
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    Gavekal Research

    Arthur Kroeber: A New Era Of Sino-US Relations

    While Donald Trump has threatened to slap huge tariffs on Chinese exports, Arthur thinks this would be an act of self-harm given the economic co-dependence between China and the US. In this video interview, he maps out the likely evolution of relations between the two countries in the years ahead.

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    Gavekal Research

    Audio & Transcript — Gavekal Research November Call

    Anatole Kaletsky, Arthur Kroeber and Charles Gave presented their views on what a Donald Trump presidency means. Anatole outlined both positive and negative potential outcomes. On the positive side, US growth could see a boost from expansionary fiscal policy, but isolationist trade policies could threaten US firms and equity prices. Arthur warned of the geopolitical risk of a power vacuum should the US pull back from its treaty obligations....

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  • Gavekal Research

    Joyce Poon: Market Timing In Asia

    Investors need to get nimbler in playing Emerging Asia’s equity markets due to the lack of any clear trend that dates back to 2010. Joyce outlines a trading strategy that can potentially make a big difference to performance.

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    Gavekal Research

    Go Contrarian In Asia

    Investing in Emerging Asia is tricky due to the high volatility that exists within the overall trend of the region’s asset markets. Hence, market-timing has become a fairly essential strategy. It was not always so, for between the mid-1980s and 2010 Emerging Asia was a fairly straightforward call—“all in” worked during structural bull markets, and “all out” was the way to go during periodic bear markets.

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    Gavekal Research

    Neil Newman: Japanese Equities — Good For A Rally?

    The Bank of Japan has rolled back the date that it expects to hit its 2% inflation target, the economy is soft and foreign investors have thoroughly given up on Japanese equities. So why does Neil think there is a good chance of a decent “Santa rally” going into the year end. In this video interview he explains.

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    Gavekal Research

    The New Frontier In Aerospace

    The highlight of this week’s Zhuhai airshow in Southern China was a fly-past by two of the People’s Liberation Army’s new J-20 warplanes, touted as China’s first stealth aircraft. Western military analysts reserved their judgment, pointing out they had learned nothing new about the aircraft, except that it was very noisy. Nevertheless, the broader message from Zhuhai was clear, echoing a similar message broadcast by the Japan International...

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    Gavekal Research

    Can India Grow By Day?

    “India grows at night,” goes a popular saying, “when the government sleeps.” Prime Minister Narendra Modi has promised to change all that as he thinks that effective governance will enable India to “grow by day.” In this piece Tom assesses the changing mechanics of government in India with a particular focus on digital solutions that have the potential to bypass an often self-interested and sclerotic bureaucracy.

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    Gavekal Research

    The Economics Behind Korea’s Political Scandal

    The political turmoil engulfing South Korea claimed the scalps of both the prime minister and the finance minister on Wednesday, as embattled president Park Geun-hye opted for a cabinet reshuffle in a bid to shore up her sagging administration. In recent months Korea has seen the bankruptcy of Hanjin Shipping, the country’s largest shipping company, and the recall of millions of Samsung’s Galaxy Note 7 phones, the flagship product from the...

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    Gavekal Research

    The Gavekal Monthly: Deflation Ends; What Next?

    The biggest market move of the past month was a significant rise in bond yields across the US and Europe. Much commentary has suggested that this might be a symptom of a sustained rise in inflationary pressures, as wages and rents start to push up prices in the US, and Chinese producer prices end four long years spent in negative territory. We are skeptical. The recent rise in yields has so far reversed only half of the decline in the first half...

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    Gavekal Research

    Safety First In EMs

    After a steady rise in emerging market inflows over the last seven months, tighter US financial conditions have led to an abrupt reversal. On the back of inflation concerns and a stronger US dollar, the seven day moving average of daily portfolio flows to EMs, as of last Monday, had fallen to its lowest level since the renminbi-induced sell-off 14 months ago. EMs are vulnerable to an externally-induced pull-back, for even if key central banks...

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    Gavekal Research

    Japan Does An Apple

    The Bank of Japan and the Japanese government have done their best to stop a grinding appreciation of the yen, but to no great avail. The unit is up 14% this year against the US dollar, which has seemingly delivered a body blow for the monetary easing “arrow” in Prime Minister Shinzo Abe’s 2012 revival quiver. This is certainly the view of foreign investors who this year have pulled money out of Japan at the fastest rate since 1987. And yet a...

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    Gavekal Research

    London Seminar — October 2016

    Charles Gave, Joyce Poon, Tom Miller and Anatole Kaletsky outlined their views on issues ranging from the end of the Pax Americana, global asset allocation in the face of increasingly ineffectual monetary policy, India's growth potential, and the imminent uncertainty for markets in the face of political risk.

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    Gavekal Research

    Thailand’s Transition

    Perhaps the one thing that Thailand’s polarized political tribes have agreed on in recent times is that the passing of their (generally) popular king would mark a pivotal moment of transition. King Bhumibol Adulyadej, 88, who died yesterday was a steady presence who stopped violent political struggles from morphing into a general civil conflict. The concern is that this restraint now goes out of the window, as opponents to the royalist...

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    Gavekal Research

    The World's New Tax Haven

    In the aftermath of the 2008 financial crisis, there was a sense that the systemic failures it revealed would spark a radical overhaul of the global financial architecture. Eight years on, that has not happened: an exception is perhaps offshore finance. The US led the way with its Foreign Account Tax Compliance Act (FATCA), which targets US citizens with footloose money. A more ambitious initiative was launched in 2009 by the G20; it aimed for...

    3
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    Gavekal Research

    Audio & Transcript — Gavekal Research October Call

    Will Denyer presented a newly minted dynamic asset allocation tool which was developed from an ROIC-based framework that has helped us to better map and predict US economic cycles. He then answered listener questions on these themes.

    0
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    Gavekal Research

    India’s Race To The Top

    What do Apache helicopters and one-fifth of the world’s vaccines have in common? They are manufactured in India’s Telangana state. How about Apple, Google and Uber? They are all opening their largest development bases outside the US in Hyderabad, the state capital, following in the footsteps of Facebook and Microsoft, which have their head India offices there. Amazon, too, is setting up its second-largest global delivery base in the city. And...

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    Gavekal Research

    Staring Into The Abyss

    Since Rodrigo Duterte became president of the Philippines in May, he has sanctioned the extra-judicial killing of some 3,600 petty criminals and drug users, graphically insulted the US president, favorably compared himself to Hitler, and threatened to switch his country’s allegiance to China and Russia. As he has ripped up behavioral norms for democratic heads of state, investors have yanked out at least US$500mn of capital over the last two...

    1
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    Gavekal Research

    The Gavekal Monthly: What Price On A Trump Victory?

    Markets seem sanguine about the prospect of a Donald Trump victory in next month's US presidential election—too sanguine. Expert opinion gives Hillary Clinton a 75% chance of winning. But remember that four months ago in the UK, expert opinion discounted polls showing a strong chance of Brexit, and the experts were proved wrong. And the consequences of a Trump win are so huge and potentially destabilizing that even a 25% chance means...

    0
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    Gavekal Research

    That Sinking Feeling

    You almost have to feel sorry for poor Haruhiko Kuroda. Just over a week after the Bank of Japan governor announced his intention to overshoot the central bank’s 2% inflation target, it is painfully obvious that investors believe he will fall short. That much is clear from the Japanese government bond market. At last week’s meeting the BoJ announced that from now on it will tailor its JGB purchases to target a 10-year yield of zero. In the days...

    0
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    Gavekal Research

    Modi Finds His Mojo

    India, according to its many skeptics, will never change. It is too messy, too unwieldy—perhaps too democratic—to emulate China as an engine of global growth. For all the hoopla that greeted Narendra’s Modi election in 2014, very little changed for the better in Modi’s first two years in charge: his new government failed to pass its “big bang” reforms, banks stopped lending, and investment slumped. Critics accused Modi of being all talk and no...

    0
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    Gavekal Research

    Singapore Seminar—September 2016

    Audio and video from the latest Gavekal seminar in Singapore is available here. Louis Gave explains why financial markets have recently behaved predictably, and why that is about to change. Andrew Batson explains why Chinese policy making is in a holding pattern until next year's party congress is settled. Udith Sikand explains why this year's emerging market outperformance is likely to continue, as bonds and especially equities have...

    0
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    Gavekal Research

    Neil Newman: BoJ Policy Meeting In A Nutshell

    After the Bank of Japan’s announcement earlier today of quantitative easing “with yield curve control”, Neil delivers a quick-fire video assessment of the new policy slant, and what it will mean for markets and the broader Japanese economy.

    0
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    Gavekal Research

    Don’t Misread The BoJ’s Signals

    The monetary policy committees of both the Federal Reserve and the Bank of Japan meet tomorrow. But whereas the Fed faces a simple binary call—either raise rates or don’t—the decision confronting the Bank of Japan is more complex.

    0
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    Gavekal Research

    The End Of A Bubble?

    Ask three economists for the definition of a financial bubble, and you will be lucky to get fewer than four different answers. Even in our little shop, we like to make distinctions between bubbles in productive assets (US railroads, the internet, fiber optic cables, shale gas wells...) and bubbles in unproductive assets (gold, tulips, Japanese land, Florida condos…). We also like to make distinctions on how bubbles are financed: equity (good) or...

    2
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    Gavekal Research

    The ECB And BoJ: Brothers Disarmed

    The combination of negative interest rates and quantitative easing is not working as central banks had hoped. Yesterday European Central Bank president Mario Draghi conceded that more than two years after introducing negative rates and 18 months after commencing asset purchases, the ECB is no closer to hitting its 2% inflation target than when it first adopted its unconventional policies. Although headline inflation is set to tick up over the...

    0
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    Gavekal Research

    Gavekal Research Monthly Conference Call — September 2016

    In the inaugural Gavekal Research monthly conference call, Louis, Anatole and Arthur addressed the global growth environment and offered asset allocation suggestions.

    0
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    Gavekal Research

    Yes, Those Indian Growth Numbers Are For Real

    China has long been the whipping boy of skeptics who claim its growth numbers can’t be trusted. Data denialists got a fat new target in 2015 when India adopted a new set of national accounts that magically bumped up its GDP growth by 1.5 percentage points to over 7%, vaulting it past China as the world’s fastest growing big economy. This seemed just a bit too good to be true. Is India’s growth for real, or just a mirage conjured up by...

    1
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    Gavekal Research

    A Better G-20 Communiqué

    Another year, another G-20, another yawn. Though the group of the world’s 20 biggest economies was useful in the aftermath of the 2008 financial crisis, it has since degenerated into another global drawing room where leaders explain to one other how the world would be a better place if only it were a better place. This was a missed opportunity.

    1
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    Gavekal Research

    India’s Quiet Revolution

    Last week India announced a partial liberalization of its debt and currency markets, which should open up the economy to more long term foreign capital. Such money is sorely needed to finance an estimated US$1trn of infrastructure spending over the next five years. While India has a fairly open equity market, debt issuance has been tightly controlled and banks account for some 80% of total financing across the economy. The issue is whether banks...

    0
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    Gavekal Research

    Real Yields Still Favor A Strong Yen

    Haruhiko Kuroda didn’t quite say he will do “whatever it takes” to push up inflation expectations, but he did the next best thing. Speaking at Jackson Hole on Saturday, the Bank of Japan governor promised “to take additional easing measures without hesitation”. Declaring there is “ample space” to expand the size and the scope of the BoJ’s asset purchases, as well as to push short term interest rates further into negative territory, Kuroda...

    0
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    Gavekal Research

    The Falling Natural Rate Is No Mystery

    As the high priests of global central banking congregate in Jackson Hole, much of the chatter ahead of the meeting has concentrated on the “mystifying” fall over recent years in the natural rate of interest, and possible reasons why it should have declined to such an extent. Having spent the last ten years attempting to apply the economic theories of the great 19th century Swedish economist Knut Wicksell, I have to say I am delighted with the...

    6
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    Gavekal Research

    Indonesia: Bet On Stability Not Growth

    Late last summer, Indonesia looked like a disaster in the making as the worsening commodity bust caused its currency and equity markets to plunge. A sharp fall in exports had caused economic growth to crater, while high inflation limited the scope for monetary easing. It was a time for strong leadership and decisive action, yet President Joko “Jokowi” Widodo seemed weak and ineffectual. A year on and much has changed with economic growth up,...

    0
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    Gavekal Research

    Demographic Dividend Or Demographic Nightmare?

    Among the Herculean challenges facing the government of India, job creation ranks first. Simply put, the number of new jobs is not keeping up with economic growth—a huge problem in a country where half the population is aged below 25. India needs to create roughly 8mn new jobs every year to absorb new entrants into the labor force. In addition, it needs to create more opportunities both for farmers seeking better-paying non-agricultural work and...

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  • Gavekal Research

    Video: Indian Growth And Demographics

    0
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    Gavekal Research

    India’s Enhanced Central Bank

    Louis is fond of quoting Lenin that there are “decades when nothing happens and weeks when decades happen”. Given India’s generally sclerotic pace of institutional change, these seem to be revolutionary times that will dictate the policymaking framework for years to come. Last week saw parliamentary approval granted for a national goods and services tax that should spur a genuinely common market, while lawmakers this weekend signed-off on an...

    0
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    Gavekal Research

    India’s Great Leap Forward

    India, finally, is on course to become a genuine economic power. Calling it a “Treaty of Rome” moment goes too far, but India’s Goods and Services Tax could prove nearly as significant as the agreement that created the European common market. India has been a strong political state for nearly 70 years, but its fragmented economy prevents goods and many services from moving freely within its borders. The GST promises to create a genuinely common...

    2
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    Gavekal Research

    The Death Throes Of The JGB Market

    While the Japanese government was rolling out its latest stimulus package yesterday—with a headline value of ¥28trn, but only ¥4.6trn of additional fiscal spending this year—investor attention was fixated on the spasms in the JGB market. Having touched a record low of -0.3% last Wednesday, the yield on 10-year JGBs leapt 28bp in just five trading days to hit a four and a half month high of -0.02% yesterday morning. On one level the spike in...

    4
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    Gavekal Research

    The Gavekal Monthly: Shall We Dance?

    In a world in which the Fed shows no inclination to get ahead of the curve on inflation and in which both the ECB and the BoJ are in full quantitative easing mode, investors everywhere are on the hunt for yield. But the chase is a nervous one. Investors are all too aware that equities and bonds are sending conflicting signals, and that the favorable trends that have lifted most assets over the last six months could be disrupted by a sudden spike...

    0
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    Gavekal Research

    The EM Equity Question

    Despite this year’s strong run-up, there remain good reasons to stick with emerging market assets. The twin impact of collapsed borrowing costs amid a renewed global hunt for yield, and greatly reduced exchange rate volatility has been the ideal environment for EM yield curve flattening trades.

    2
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    Gavekal Research

    The Flow Through To EM Equities

    These are strange times for investors with bond yields in big developed markets plumbing new depths on dark concerns about never ending deflation and stagnation. Yet in a clearly related development, US equities are making new highs while corporate- and emerging market-bonds continue to rally.

    2
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    Gavekal Research

    The JGB Endgame Approaches

    Over the last couple of weeks, the world’s attention has been focused by turns on British politics, Italy’s banking crisis, the US presidential race and most recently, last night’s ghastly events in Nice. It is little surprise then, that a series of three stories from Japan (or perhaps just two and a half) has passed largely under the radar. Taken together, however, these developments bear heavily on the future of the Japanese government bond...

    2
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    Gavekal Research

    Can ‘Make In India’ Work?

    In September 2014, Prime Minister Narendra Modi launched an initiative to transform India from an industrial laggard into a global manufacturing hub. The “Make in India” plan is sorely needed: in 2014, India’s merchandise exports accounted for a paltry 1.7% share of the global total. That was on a par with Taiwan, whose population is smaller than Delhi’s. India relies heavily on imports of consumer goods, especially from China, and runs a large...

    2
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    Gavekal Research

    A Fundamental Assault On Freedom

    Of all basic freedoms, one of the most fundamental of all is the freedom of the individual to organize his or her relationship with time. The way we order our affairs with respect to the all too brief time allocated to us on this earth is a profound right that we all should be allowed to exercise unhindered. In short, everyone should be free to choose whether to be an ant or a grasshopper.

    10
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    Gavekal Research

    The Next Monetary Move

    Shinzo Abe was today scheduled to meet with Ben Bernanke, the chief architect of unconventional monetary policy responses following the 2008 crisis, with the issue of Japan’s adoption of so called helicopter money expected to top the agenda. In this piece Joyce asks would Japan do it and more importantly could money drops make any difference in the land of the stagnant price index.

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