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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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    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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    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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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    Gavekal Research

    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.

    0
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    Gavekal Research

    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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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    1
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    Gavekal Research

    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...

    0
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    Gavekal Research

    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.

    1
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    3
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    1
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    0
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    Gavekal Research

    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.

    10
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