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Gavekal Research
Louis Gave
Sep 06th 2018
On Getting It Wrong
Louis went into 2018 with a set of assumptions about how growth and markets around the world would play out. It hasn’t exactly worked out as expected and in this mea culpa he seeks to understand how he got it wrong and what comes next. He concludes that a key driver of the changed investment environment was not so much the strength of the US dollar but China’s decision to allow a renminbi devaluation.
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Gavekal Research
Udith Sikand
Sep 05th 2018
The Korean Advantage
Yesterday was another bad day for weak-link emerging markets battling a rising US dollar. Still, my contention during this year’s EM sell-off has been that investors should sort the wheat from the chaff. With a current account surplus of 5% of GDP and forex reserves of US$400bn, exhibit-A is South Korea.
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Gavekal Research
Will Denyer, Tan Kai Xian
Sep 04th 2018
Strategy Monthly: A Simple Guide To US Asset Allocation
We synthesize four years of work on asset allocation and present a model portfolio built around analysis of the cost of and return on capital; the real rate of return on equities, bonds and cash; and the ideal duration of fixed-income holdings. Today we recommend that US portfolios hold 75% in equities, 25% in cash, and shun bonds.
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Gavekal Research
Udith Sikand
Aug 31st 2018
Disentangling The EM Mess
It has been tough reconciling weak emerging market performance this year with their generally decent macro fundamentals. Charles pins the blame on a US dollar squeeze and will publish an update later today. By contrast, Anatole reckons that markets have made a mistake in assuming that EMs are especially vulnerable to a strong US dollar. I see merit in both positions, but do not buy the fact that there is a catch-all explanation for what is going...
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Gavekal Research
Anatole Kaletsky
Aug 30th 2018
Tail Risks That Worry Me
Yesterday I made the case that emerging markets should be superior performers in a global bull market, which I characterized as the most hated in history. What that analysis left out was the relative prospects of the other big blocks in the global equity universe; namely, Europe and Japan. My core point yesterday was that trade wars do more harm to economies that close their markets than those countries which supply them, and on this score...
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Gavekal Research
Anatole Kaletsky
Aug 29th 2018
Misunderstanding Today’s EMs
Suppose that, like me, you think the global equity bull market has a few more years to run and hence the sell-off which culminated with Turkish debt being downgraded two weeks ago was a merely a correction. Where are the best opportunities to “buy the dip”? The answer depends on whether you also share my view about the underlying causes of this year’s market setbacks.
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Gavekal Research
Udith Sikand, Tom Miller
Aug 29th 2018
India Macro Update: A Mixed Masala
As public spending is cranked up ahead of an election that is expected to be held next spring, India should be able to sustain its current level of economic growth for a while yet. However, the rate of expansion has likely passed the high water mark for this cycle, argue Udith and Tom in this quarterly update.
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Gavekal Research
Charles Gave
Aug 22nd 2018
Trouble With Monopsonies II: Joan Robinson Versus David Ricardo
Among the discussion topics at this week’s Jackson Hole meeting of world central bankers will be whether the market power of giant corporations is so great it allows them to hold down workers’ wages at the global level. Charles has no doubt, arguing in this paper that the development of platform companies into labor monopsonies accounts for what has been misunderstood as “secular stagnation”.
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Gavekal Research
Arthur Kroeber, Udith Sikand
Aug 16th 2018
How To Assess The Stresses On EMs
Emerging market equities are officially in a bear market, with the MSCI EM index down -20% from its January peak. EM-related commodities are also hurting, notably copper which has fallen -18% since June. The central question now is whether one should steer clear of all EM assets, because the rout is general and likely to get worse; or if one should keep an eye out for buying opportunities here and there. With some trepidation, we advise the...
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Gavekal Research
Tom Miller
Aug 15th 2018
Why Indian Tourists Are The New Chinese
Some 25mn Indians traveled abroad last year, making sub-continent tourists increasingly important for a range of major destinations. They may not yet rival Chinese travellers who are by far the biggest group of globe-trotters, but in this piece Tom argues that is only a matter of time. Already, it is cheaper for Indians to travel to a range of overseas destinations than within India itself and the middle class increasingly has the travel bug.
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Gavekal Research
Udith Sikand
Aug 07th 2018
The Fire Testing Of Asian Junk
The strong US dollar, rising oil prices and a gathering trade war have sent capital fleeing from emerging markets. Asian high-yield debt has taken a hit with the benchmark (JP Morgan) index down -3% this year, sparking worries of a self-feeding cycle that ends with a debt crisis. We have taken a fairly constructive view on emerging economies due to their generally non-threatening macro-fundamentals. Hence, with EM asset prices stabilizing it is...
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Gavekal Research
Charles Gave
Aug 01st 2018
Strategy Monthly: Towards A Global Liquidity Crisis?
In our latest outlook for global investment strategy, Charles Gave warns that the world may be heading into a dollar liquidity squeeze. There have been seven such scarce-dollar episodes since 1971, and every one produced some big financial accidents. The basic symptom today is that the US is heading into an inflationary boom, while the rest of the world is seeing slower economic growth and weaker asset prices. Investors must be defensive; but...
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Gavekal Research
Udith Sikand
Jul 25th 2018
The Bank Of Japan's Choices
Global bond markets have been jolted this week by an unusual source: the Bank of Japan. Reports that the BoJ is considering making unspecified tweaks to its policy stance triggered a 5bp spike in the 10-year Japanese government bond yield on Monday, and were blamed for an 8bp rise in the 10-year US treasury yield. BoJ governor Haruhiko Kuroda promptly denied the stories, insisting he knew “absolutely nothing” about the matter. And the central...
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Gavekal Research
Udith Sikand
Jul 25th 2018
An Indian Quagmire
India has won kudos for adopting a modern bankruptcy law that makes it easier for big lenders to clean house on a bad debt problem that has festered since the early 2000s. The problem is that an approach which would garner broad support on Wall Street and then be executed through fairly efficient courts in New York and Delaware, has in India run into the sand of murky politics and bureaucratic sloth.
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Gavekal Research
Udith Sikand
Jul 25th 2018
Video: Understanding India’s Bad Loan Problem
India has won kudos for adopting a modern bankruptcy law that makes it easier for big lenders to clean house on a bad debt problem that has festered since the early 2000s. In this video interview Udith discusses how the new bankruptcy law has worked in practice, and whether it will be enough to solve Indian banks' bad debt problem.
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Gavekal Dragonomics
Arthur Kroeber
Jul 24th 2018
Destination Escalation
Will we see any break in the escalation of Trump’s trade wars this year—either because one of the targets capitulates and tries to strike a deal with the US, or because blowback within the US against the negative impact of trade wars gets strong enough that Trump needs to beat a tactical retreat? The answer is a firm no, on both counts.
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Gavekal Research
Udith Sikand
Jul 19th 2018
Fair Weather Friend, Or Safe Port In A Storm?
On Thursday morning in Asia, the Japanese yen was trading at ¥112.7 to the US dollar. At that level the yen is down -7.2% from its late March high, a fall which has erased all its first quarter gains and left the currency exactly flat year-to-date. At first glance this fall might seem surprising, given the degree of nervousness in global markets and the yen’s reputation as a safe haven currency, not to mention its undervaluation relative to...
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Gavekal Research
Neil Newman
Jul 13th 2018
Japan Joins The Global Labor Market
The biggest worry of senior managers at Japanese manufacturing firms is not Donald Trump’s trade war, the state of global demand or fear of Chinese intellectual property theft, but an acute shortage of workers. Neil charts the dynamics of Japan’s ever-decreasing labor market, and examines the policies Tokyo is rolling out in an attempt to deal with the problem.
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Gavekal Research
Tom Miller
Jul 13th 2018
The Chinese Juggernaut Will Roll On
In 2015, I sat down with Sri Lanka’s then-new finance minister. The “teardrop of India” had recently elected a fresh government, kicking out a corrupt president widely regarded as in China’s pocket. Vowing to scrutinize all Chinese deals, the new leaders suspended a massive real estate project in Colombo harbor. “The high costs come from nothing other than corruption, but we do not want taxpayers to pay for the past decisions of a corrupt regime...
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Gavekal Research
Charles Gave
Jul 11th 2018
The Recession Of 2019
Over the last three months, I have become increasingly concerned that a recession will hit the world economy in 2019. In this paper, I shall explain why. My reasoning is simple, and is based on the behavior of an indicator I have long followed, which I call the World Monetary Base, or WMB. Every time in the past that this monetary aggregate has shown a year-on-year decline in real terms, a recession has followed, often accompanied by a flock of...
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