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Gavekal Dragonomics
Lance Noble
Dec 05th 2019
The Pitfalls Of Beijing’s AI Strategy
The Chinese government has made artificial intelligence a national development priority and is dedicating huge resources to the task. Yet, as Lance explains in this report, the effort is suffering from mismanagement, wasteful provincial competition and difficulty retaining skilled workers.
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Gavekal Research
Louis Gave
Dec 05th 2019
Is Energy Uninvestible?
Who would have thought at the time of the September attacks on Saudi that the oil sector would perform so dismally in the weeks after? This has been in line with a longer term underperformance, which has led many investors to dismiss the energy sector as uninvestible. Louis examines some of the arguments underlying this belief, and comes to an intriguing conclusion.
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Gavekal Research
Vincent Tsui
Dec 05th 2019
Carry Is Still King In Asia
With the Federal Reserve firmly set in easing mode and the US heading into an unpredictable election season, there are good reasons to think the US dollar could be set for a period of weakness. A key beneficiary could be Asian currencies, which as a group are down about -10% against the global reserve currency in the last five years.
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Gavekal Research
Udith Sikand, Tom Miller
Dec 04th 2019
India Macro Update: Stuck In A Rut
After India’s economic growth rate slumped to a six-year low in the third quarter, the government of Narendra Modi is throwing fiscal caution to the winds in an attempt to juice up growth. Some form of recovery is likely over the coming quarters, but any loss of confidence among the foreign investors will leave asset prices vulnerable to hefty losses in US dollar terms.
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Gavekal Research
Andrew Batson
Dec 04th 2019
The New Champion Of Monetary Conservatism
The People’s Bank of China and the Bundesbank have never been known to be close. But Yi Gang, the Chinese central bank governor, is starting to sound German in his views on monetary policy. He argues that negative interest rates and quantitative easing have been a failure, and China must stick with conventional policy and positive rates.
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Gavekal Dragonomics
Rosealea Yao
Dec 03rd 2019
The Back Door Is Still Closed
A slew of new government policies has boosted market expectations for China’s infrastructure spending in 2020. But Rosealea counsels caution: while new measures have opened the “front door” of approved funding a bit wider, more important is that the “back door” of shadow financing remains firmly closed. A big rebound in public works is unlikely.
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Gavekal Research
Nick Andrews, Cedric Gemehl
Dec 03rd 2019
The Long Slow Road To German Fiscal Expansion
To read the media headlines, you would either think that Germany’s coalition government is on the brink of collapse, or that Europe’s largest economy is on the eve of a massive fiscal expansion. The headlines are exaggerated. Yes, at the weekend the coalition’s SPD partner did elect a duo of free-spending leftists as its new leaders. But the government is likely to survive intact for its remaining two years. And although political thought in...
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Gavekal Research
Anatole Kaletsky
Dec 02nd 2019
Learn To Stop Worrying And Love The Pound
Sometimes, markets just get things wrong. Since early January investors have been panicking about a “no deal” Brexit, and I have been urging clients to buy sterling. Not because I became less gloomy about the damage that will be done to Britain by any form of Brexit, but because a “no deal” rupture is the one version of Brexit that can be confidently ruled out.
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Gavekal Research
Research Team, Tom Holland
Dec 02nd 2019
Strategy Monthly: Risk Assets In 2020
World stock markets have enjoyed a solid couple of months as geopolitical risks have abated and the manufacturing slowdown appears to have leveled off. With major central banks all printing money simultaneously for the first time since the financial crisis, and fiscal policy easing at the same time, there are good reasons to believe the rally will be sustained into 2020.
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Gavekal Research
Simon Pritchard
Nov 29th 2019
An American Intervention
After easily passing both houses of Congress, Donald Trump had little choice but to sign bills dictating the US government’s treatment of Hong Kong. Its significance will be determined by Beijing’s response, and for now that is likely to stay focused on achieving an interim trade deal that delivers a roll-back on US import tariffs.
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Gavekal Research
Charles Gave, Will Denyer, Tom Miller, Anatole Kaletsky, Udith Sikand, Arthur Kroeber
Nov 28th 2019
Seminar Series Multimedia — Fall 2019
Partners and analysts present their core ideas for the big economic regions and global markets heading into the year-end and looking forward to 2020.
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Gavekal Research
Tan Kai Xian
Nov 28th 2019
The Earningless Equity Rally
In the third quarter, US macro-level domestic earnings fell -1.9% year-on-year. Behind this squeeze lies a weak sales picture tied to trading uncertainty and a rise in wages. In the near term, both factors could intensify. Yet there is nothing especially new in weak US profits and a ripping equity market. There are, in fact, three reasons to think this situation can be sustained.
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Gavekal Dragonomics
Thomas Gatley
Nov 27th 2019
How To Get Comfortable With Chinese Equities
The inclusion of Chinese onshore equities in global indexes has catalyzed a wave of interest from global investors. But for foreign investors to really get comfortable with Chinese stocks, Thomas argues, they need to grasp the many issues not addressed by index inclusion such as volatility, leverage, regulatory risk and corporate governance.
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Gavekal Research
Cedric Gemehl
Nov 27th 2019
The Upside Of Downing Tools
A year after the eruption of the gilet jaune protests forced Emmanuel Macron to scrap planned fuel tax increases, the French president is facing fresh opposition to his program of structural reforms.On December 5, a coalition of labor unions is promising to down tools in an “unlimited” strike against the government’s proposed overhaul of France’s state pension systems.
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Gavekal Research
Charles Gave
Nov 26th 2019
The VIX, Fragility And Indexation
At the same time as US stock markets ascended to all-time highs on Monday, the VIX volatility index fell to its lowest close in more than a year. In and of itself, this decline in the VIX should hardly be a great surprise given the Fed's liquidity expansion. But as part of a longer term pattern, this policy-driven decline in stock market volatility is deeply troubling.
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Gavekal Dragonomics
Ernan Cui
Nov 25th 2019
The Chinese Consumer In 2019
In her annual review of the Chinese consumer, Ernan analyzes the trajectory of household spending and unearths thematic opportunities in consumer markets. After 2019’s slowdown, consumption should stabilize in 2020 as the labor market improves. Luxury goods and cosmetics are booming, but overseas tourism and traditional retail are weaker.
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Gavekal Research
Simon Pritchard
Nov 25th 2019
The Hong Kong People Speak
The last 15 years has seen pro-government parties in Hong Kong rely on voter apathy and division across the democratic camp to often rule the roost. That changed yesterday, with establishment parties getting thumped in local council elections as voters expressed anger at the government’s handling of violent street protests in the last six months.
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Gavekal Research
Charles Gave
Nov 22nd 2019
Musings On Trump And Powell
His detractors will never admit it, but Donald Trump has done much that is good for the US economy. Notably he has reduced corporate taxes and cut red tape, boosting returns on invested capital. But in calling on the Federal Reserve to cut interest rates further, he is not only making a big mistake, he is courting disaster—though not for the reason his critics believe.
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Gavekal Research
Vincent Tsui
Nov 22nd 2019
Video: A Better Outlook For Asia?
Despite on-again, off-again talks, there are hopes that the US and China can reach an accommodation to avert a full-scale trade war that causes global production chains to be upended. Since the Federal Reserve is again in easing mode, leading to a weaker US dollar, Vincent explains what these developments mean for Asia.
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Gavekal Dragonomics
Rosealea Yao
Nov 21st 2019
The Crackdown On Developer Financing
China’s financial regulators are squeezing funding for property developers in order to discourage land speculation and cool down property prices. In this piece, Rosealea argues the crackdown has been fairly successful, and does not pose a big risk to construction. Slightly easier demand-side policies will help offset tough supply-side restrictions.
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Gavekal Research
Vincent Tsui
Nov 21st 2019
The Hong Kong Effect Means A Taiwan Opportunity
Taiwan's stock market has gained 18.6% year-to-date. This rally will be vulnerable to a heightening of bellicose rhetoric from Beijing prompted by the expected victory of the incumbent China-skeptic Tsai Ing-wen in January’s presidential election. But given the favorable structural and cyclical trends, any sell-off around the election should provide an attractive buying opportunity.
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Gavekal Research
Louis Gave
Nov 21st 2019
Questions On The Changes Of The Past Two Months
Recent weeks have seen a turn in the investment environment, with global equities outperforming those in the US, cyclicals outperforming growth stocks, a steepening US yield curve and a stall in the US dollar’s rally. Louis recently met with a lot of US clients and outlined his explanation for these shifts. He got some push-back and this report is the product of those deliberations.
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Gavekal Research
Louis Gave
Nov 20th 2019
The Implications Of Hong Kong For China
Many clients ask how China’s ruling Communist Party, the CCP, will react to what many policymakers in Beijing regard as an intolerable challenge to their authority by protesters in Hong Kong. The answer to this question will have direct implications for the city and its future as China’s international financial center. It will also have implications for the evolution of policy within mainland China itself.
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Gavekal Research
Louis Gave
Nov 19th 2019
There Is A First For Everything
We live in the 21st century, and if a liquidity injection program by the Federal Reserve doesn’t want to identify as quantitative easing, then we should respect that choice, and call it by whatever name it chooses for itself—even if almost everyone now calls the US$60bn injection “non-QE QE”. However, lost within the debate over naming lies a long list of interesting “firsts”.
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Gavekal Research
Charles Gave
Nov 19th 2019
The Signal In International Liquidity
Historically, few indicators have been as important for global markets as the amount of US dollar liquidity available outside the US. When this has turned down, trouble has reliably followed. This year, notes Charles, the indicator has again turned negative. But as he explains, all may not be lost.
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Gavekal Dragonomics
Lance Noble
Nov 18th 2019
Defending The Single Market
Europe’s leaders are promising a more forceful approach to defending the bloc’s interests. But they do not fully subscribe to the view, widely held in the US, that China is a strategic rival and security threat. What they have been able to agree on, as Lance argues, is the need to protect the EU’s single market against Chinese state capitalism.
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Gavekal Research
Tan Kai Xian
Nov 18th 2019
The US Manufacturing Slump Abates
US manufacturing output fell -1.5% year-on-year in October to mark its weakest month since December 2015. The worry is that a US manufacturing recession causes such a drag that even well-performing sectors like housing get sucked down as well. The good news is that these production numbers look like a nadir.
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Gavekal Dragonomics
Andrew Batson
Nov 15th 2019
Handing Off The Slowdown
China’s data releases for October showed signs that the global downturn in electronics, and the domestic fall in car sales, are starting to fade. But the bad news is that the property and heavy industry complex is weakening. That combination means roughly stable growth for the moment, reassuring policymakers that their cautious stance works.
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Gavekal Research
Tom Holland
Nov 15th 2019
Saudi, Peak Oil Demand And Aramco
With the rise of environmental concerns and alternative energy sources, the preoccupation is that peak oil demand could be as few as 10 years into the future. The fear that come the 2030s or soon after, it could be left sitting on 300bn barrels of stranded assets is behind the Saudi Arabian government’s decision to sell shares in its monopoly petroleum producer, Saudi Aramco.
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Gavekal Research
Tan Kai Xian, Will Denyer
Nov 14th 2019
Looking Through To US Inflation
In Congressional testimony yesterday, Jay Powell expressed optimism that US inflation will gradually rise toward the Federal Reserve’s target of 2%. If this is the case then it is reasonable to think that the US central bank could be done with rate cuts in this cycle but some way away from any rate hikes—this points to a Goldilocks of sorts.
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Gavekal Research
Will Denyer
Nov 14th 2019
Video: A Turning Point For The Dollar
For the last five years, the world has lived with a strong US dollar. That may be about to change. Not only has the Fed turned dovish, its return to balance sheet expansion means it is now printing more money each month than its central bank peers, such as the ECB. This liquidity splurge, coupled with a diminution of dollar-supportive international risks may point to a period of US dollar weakness.
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Gavekal Research
Simon Pritchard
Nov 13th 2019
Something Has To Give
Public support for Hong Kong's protest movement has been re-energized by perceived police brutality, the local government offering no political response to the crisis and Mainland authorities delivering mixed, but slightly sinister messages about their next move. This piece assesses the political forces at play and takes a stab at explaining what comes next.
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Gavekal Dragonomics
Dan Wang
Nov 13th 2019
The Weakening Bite Of US Tech Sanctions
US sanctions on Chinese technology companies have grown progressively less effective since the US government used them to take down ZTE. Huawei has refused to collapse, and other targeted firms are not too troubled. In this piece, Dan explains why export controls, once the kiss of death, are becoming just another operational challenge.
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Gavekal Research
Louis Gave
Nov 12th 2019
The Hong Kong Conundrum
When I wrote on the Hong Kong dollar peg back in May, there was no inkling that trust between the police and much of Hong Kong’s population would fully break down. Today, Hong Kongers are saying: “We don’t trust the police to do the right thing, or even speak the truth”. This situation causes many clients to ask: "Why has the peg not broken down?"
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Gavekal Dragonomics
Xiaoxi Zhang
Nov 11th 2019
The Financing Squeeze Spreads To Corporate Bonds
The corporate bond market was once promoted as a better way to finance China’s private firms. Instead, as Xiaoxi explains in this piece, it has turned into another source of financial pressure. The corporate bonds of private firms are now maturing faster than they can issue new ones, creating a financing squeeze that could last through 2021.
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Gavekal Research
Cedric Gemehl, Nick Andrews
Nov 11th 2019
Europe's Political Paralysis
With the Spanish general election unlikely to produce a proper government, the country looks increasingly ungovernable. For an economy that weathered the financial crisis intact but has chronic productivity problems, this is a worry. However, the result of Europe’s fragmenting political landscape is long-term policy stasis rather than a near-term collapse of the single currency.
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Gavekal Research
Nick Andrews
Nov 08th 2019
It's Not 2017 Again In Europe
Yesterday saw a global risk-on move as investors cheered reports that a US-China trade deal may be in the offing. In Europe, this followed data releases that showed German factory orders picking up and PMIs stabilizing. On first blush, this looks reminiscent of 2017’s recovery. Alas, there are three key reasons to think a rerun may not materialize this time around.
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Gavekal Research
Nick Andrews
Nov 08th 2019
Video: In Search Of Policy Traction
New European Central Bank boss Christine Lagarde has called on European governments to do more on the fiscal front to support eurozone growth. Only Germany has wiggle room within the EU fiscal straitjacket to launch a significant stimulus program. However, political resistance in Berlin to opening the spending taps remains formidable, and may be insurmountable.
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Gavekal Research
Tan Kai Xian
Nov 07th 2019
Time To Embrace The US Consumer
Whether moving into a fixer-upper or a freshly finished McMansion, most homeowners will splurge on big ticket items to embellish their new abode. With the US housing market looking strong, investors should bet on consumer discretionary—it has the advantage of offering protection if long-dated bond yields move materially higher.
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Gavekal Dragonomics
Thomas Gatley
Nov 07th 2019
Autos Are Getting Back On The Road
China’s industrial slowdown is not just about exports. The deep downturn in auto sales accounts for about half of the slowdown in GDP growth since 2018, Thomas estimates. Things are now starting to look less bad, and the growth drag is heading back toward zero. But autos are still not about to deliver a big boost to growth or commodity demand.
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Gavekal Research
Udith Sikand
Nov 07th 2019
India’s Implausible Energy Ambitions
Narendra Modi’s government has set out ambitious objectives for India’s energy policy, targeting wider access to affordable energy, a greatly increased role for renewables, and stronger national energy security. The trouble is that these aims appear to be contradictory, and the government has yet to set out a coherent plan for implementation.
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Gavekal Research
Andrew Batson
Nov 06th 2019
Let The Thousand Cuts Begin
Was it worth the wait? Markets have been expecting the People’s Bank of China to cut policy rates ever since it introduced a new rates framework in August and promised to lower funding costs. On Tuesday, the central bank finally delivered, rolling over its one-year medium-term lending facility at 3.25%, 5bp below the previous rate of 3.3%.
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Gavekal Research
Vincent Tsui
Nov 05th 2019
The Asian Electronics Bounce
With an inventory glut having been worked off, there are tentative signs that Asia’s electronics export cycle is bottoming out. Since tech has accounted for 90% of emerging Asia’s equity returns in the last five years, some beaten-up names may be primed for a bounce. The same could be true of export-sensitive currencies like the Korean won, Singapore dollar and Taiwan dollar.
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Gavekal Research
Louis Gave
Nov 05th 2019
The Knowledge Revolution And Its Consequences
From Hong Kong to Santiago to Paris, this year has seen protestors rage against out-of-touch political elites. But does anything more than anger connect these apparently disparate movements? Louis argues that the upheavals posed by the ongoing “knowledge revolution” may explain the phenomenon, and offers investment advice on how to survive revolutionary times.
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Gavekal Dragonomics
Lance Noble
Nov 04th 2019
Security Rules Are Decoupling Technology
Presidents Trump and Xi may be edging toward a trade deal, but trust between the US and China has not been restored. As Lance explains in this piece, China’s bureaucracy is ramping up its already-restrictive security rules on technology hardware, software and data flows. This push will ensure some decoupling of China’s tech sector from the US.
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Gavekal Research
Anatole Kaletsky
Nov 04th 2019
Behind The Risk-On
In recent months, economic data has improved or stabilized, and political risks have receded. But now that equity prices on Wall Street have hit new records and US treasury yields have rebounded from the bottom of their post-2011 trading range, it is worth asking if the move to risk-on conditions is a temporary mood swing, or one supported by economic fundamentals.
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Gavekal Research
Charles Gave
Nov 01st 2019
Gold Signals A System Failure
To make the point that gold is the only monetary asset that is not someone else’s liability, John Pierpont Morgan used to say that “gold is money, the rest is credit”. For simplicity’s sake, let’s assume that this quip corresponds to reality—the implication is that the relationship between the gold price and the credit system must be full of information.
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Gavekal Research
Will Denyer, Tan Kai Xian
Nov 01st 2019
Strategy Monthly: Towards A Dollar Decline
The last five years have been an era of US dollar strength. That era may now be coming to an end. After the US Federal Reserve halted its balance sheet contraction and last month resumed buying T-bills at a rate of US$60bn a month, the Fed is now printing money faster than the other central banks. As a result, relative liquidity growth now favors US dollar weakness.
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Gavekal Research
Will Denyer
Oct 31st 2019
Easy Money And Robust Growth
No wonder the S&P 500 closed at a new high yesterday. On the same day the Federal Reserve cut interest rates by 25bp, US GDP growth for 3Q19 came in at a robust 1.9%. For its part, the Fed gave no indication of paring down its new asset purchase program (quantitative easing in all but name). This is bullish for risk assets and bearish for the US dollar.
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Gavekal Research
Thomas Gatley
Oct 31st 2019
Video: China's Private Financing Woes
Chinese credit growth picked up in September, which is good news at the margin for private sector liquidity. However, a continued crackdown on shadow finance and private firms’ difficultly rolling over bond obligations will retard capital spending and lead to more bond defaults into next year.
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Gavekal Research
Nick Andrews
Oct 30th 2019
A Swedish Canary In The Coal Mine
Sweden’s Riksbank plans to raise its main policy rate to zero from -0.25%. A relieved governor, Stefan Ingves, said last week it would be a “bonus” to return to parity in December and warned against staying negative for too long. The Swedish recantation follows the European Central Bank’s controversial move last month to further cut rates to -0.5%. Investors should take note because the Swedish canary may be signaling a shift in attitudes to...
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Gavekal Dragonomics
Rosealea Yao
Oct 30th 2019
Housing & Construction Review 2019
China’s property market has held up surprisingly well in 2019, but will that strength last? In her annual chartbook, Rosealea examines key market trends and explains the outlook for 2020. Flexible policy can probably continue to avoid a deep decline in housing sales, but construction activity and materials demand are almost certain to slow.
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Gavekal Research
Louis Gave
Oct 29th 2019
Where Will Growth Come From Now?
In the spring of 2003 Gavekal posited that China would become the new locomotive of world growth. But now, the days when China could be counted upon to gear up its balance sheet and pull global growth up by its bootstraps are coming to an end. And as global activity slows investors are asking “where will the growth come from"?
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Gavekal Research
Arthur Kroeber
Oct 28th 2019
China-Bashing In A Political Season
Signs are growing that the US and China will have a mini-deal on trade ready by the time Trump and Xi meet at the mid-November APEC summit. The key questions are whether opposition from US hardliners could derail the deal at the last moment, and whether the campaign to “decouple” the two economies will be knocked back if there is a deal.
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Gavekal Research
Will Denyer
Oct 25th 2019
US Dollar Under Fire
The richly-valued US dollar is finally starting to look vulnerable. While still in its post-2015 trading range, the DXY index has given up -1.5% in the last 11 trading days; broader trade-weighted measures have also swooned. A range of factors are now weighing on the US currency and if they persist the unit could see a pronounced decline in the coming months.
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Gavekal Research
Tan Kai Xian
Oct 25th 2019
Video: Playing The Un-inversion
Having inverted over the summer, the US yield curve has steepened sharply. In the past such a move has often presaged recession—but not always. Twice since the 1960s an inversion and steepening was not followed by recession. Then, as now, the return on invested corporate capital was higher than the cost of that capital.
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Gavekal Research
Cedric Gemehl
Oct 24th 2019
Draghi's Potent Legacy
Mario Draghi threw the cat among the pigeons at last month’s fiery policy meeting of the European Central Bank by cutting interest rates and cranking up asset purchases. Today’s general council meeting and sign-off by the outgoing president should be quieter, but the circumstances of the baton-handing show how much the ECB’s reaction function changed under Draghi. That legacy poses a big challenge for his successor, Christine Lagarde, but he...
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Gavekal Research
Tom Miller
Oct 24th 2019
Solving India's Water Crisis
Experts predict that half of India’s demand for water will be unmet by 2030, threatening livelihoods and the country’s development prospects. Yet water scarcity need not be a disaster for India. With more efficient agricultural practices and better management, India has sufficient water resources both to feed itself and keep its economy on track.
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Gavekal Dragonomics
Ernan Cui
Oct 23rd 2019
The Bills Come Due In Tianjin
On paper, the northern port city of Tianjin was once the richest place in China. But now its financial center lies empty, its statistics have been exposed as falsified, and the local government and firms are close to running out of cash. In this report, Ernan explains why Tianjin’s long-running problems have finally burst into the open.
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Gavekal Research
Tan Kai Xian
Oct 23rd 2019
Culling The Pessimists
A series of head-spinning flip-flops in the on-again-off-again trade war over the summer has caused US businesses to delay fresh investment. As a result, business surveys have been giving readings consistent with a US recession. Yet it seems likely that any damage wrought by the trade war remains ephemeral—at least hard data suggests this.
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Gavekal Research
Udith Sikand
Oct 22nd 2019
A Japanese Price Taker
The yen has long been a fairly reliable indicator of global risk appetite. Over the summer, trade war fears pushed the yen up to ¥105 to the US dollar, before recent cheerier developments saw it weaken again. If the BoJ can deliver on its promise to match other central banks’ easing moves, that weakening trend could be worth following. Alas, the BoJ probably can’t.
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Gavekal Research
Andrew Batson
Oct 21st 2019
Three Swing Factors For Chinese Growth
China’s recent economic figures do not paint a bright picture. Yet some of the problems weighing on growth are moving closer to resolution. So how much of a bounce in the data can we expect from these positive developments? Three possible sources of good news can help answer this question: exports, domestic investment and autos.
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Gavekal Research
Louis Gave
Oct 21st 2019
A Canadian Election
Today sees Canadians go to the polls to choose a new government. The ruling Liberal Party faces an electoral squeeze, but it is not clear that the outcome of the election will unduly impact Canada’s economic prospects. Louis runs through the outlook for an economy that most people he speaks to are down on.
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Gavekal Research
Anatole Kaletsky, Cedric Gemehl
Oct 18th 2019
Europe's Brexit Booster
Boris Johnson has secured a revised Brexit deal and the stage is set for a key Saturday vote in the House of Commons. On balance, there is a 70% chance of the vote passing as Labour leader Jeremy Corbyn seems unable to control his Brexit-supporting rebels, while Johnson looks to have persuaded his Brexiteer wing that it could be now or never.
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Gavekal Research
Louis Gave
Oct 18th 2019
Video: The End Of The Trend?
For the past few years, US treasuries, the US dollar and the oil price have all broadly traded in a range. In fact, the only bankable trend for investors has been the outperformance of US equities, without which global stock indexes would still be trading at 2006 levels. However, there are signs that the investment environment is changing.
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Gavekal Research
Charles Gave
Oct 17th 2019
The Paris Project In A Keynesian Time
Some time ago, I had gathered a team in Paris to develop a new venture that would apply macro research analysis to portfolio construction in a systematic way. Things are progressing well and I wanted to update readers on the initiative. The common thread is a rejection of forecasting and a reliance on market prices and economic data.
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Gavekal Dragonomics
Thomas Gatley, Ernan Cui
Oct 17th 2019
The Case Of The Mysterious Vanishing Statistics
Problems with China’s economic statistics are often blamed on falsification by local officials. But they are not the only ones causing trouble. In this piece, Thomas and Ernan document how central government agencies, including the National Bureau of Statistics and the central bank, have recently stopped publishing some important data series.
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Gavekal Research
Vincent Tsui
Oct 16th 2019
The Asian Currency Bounce
Despite few underlying tensions being settled, the interim US-China trade deal has cheered up investors. The view has been that the US president now wants to bag a political win ahead of next year’s election and move on. This outcome should support trade-dependent Asian currencies—but perhaps not equally.
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Gavekal Research
Louis Gave
Oct 16th 2019
The Age Of Range Trading
It is a Gavekal adage that 10-year treasury yields, crude oil prices and the US dollar exchange rate are “master prices” that have an outsized impact on economic activity and financial markets. Yet as Louis notes, in recent years, these three prices have shown little by way of a structural trend. In this piece, he seeks to understand the meaning from this range-trading phenomenon.
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Gavekal Research
Will Denyer, Tan Kai Xian
Oct 15th 2019
The Fed Goes On The Offensive
Grocery shoppers get perturbed when they buy produce labeled as “organic” but get something from the agro-industrial complex. Investors, on the other hand, should welcome the Federal Reserve’s balance sheet boost, that was described on Friday as nothing more than “organic” growth. As it turns out, this is a heavily engineered offering by the custodians of money.
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Gavekal Research
Tom Miller
Oct 15th 2019
Modi Shifts From Tub-thumping To Stimulus
After spending the first few months of his second term on nationalist politics, Indian Prime Minister Narendra Modi is shifting his government’s attention to the economy. The substantial corporate tax cut announced last month was welcome news. However, Modi will have an uphill battle to get the economy moving before ballooning twin deficits begin to bite.
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Gavekal Research
Arthur Kroeber
Oct 14th 2019
Trump’s Unreal Deal With China
The US-China trade cease-fire shows that President Trump needs a quick deal: facing a soft economy and likely impeachment, he wants to bank a win as soon as possible. The two sides are moving toward a deal in November, but that will not change China's economic model or end US efforts to constrain China's technological rise.
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Gavekal Research
Anatole Kaletsky
Oct 14th 2019
Sizing Up The Brexit Risks
The pound surged after Boris Johnson and Irish Prime Minister Leo Varadkar achieved a negotiating breakthrough on Thursday over arrangements for the Irish border. The question is: What next? Anatole argues that while these moves still point to a multi-pronged set of outcomes, at least there is now a measurable set of permutations.
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Gavekal Research
Tan Kai Xian
Oct 11th 2019
Watching For Signs Of A US Spillover
Is the rot spreading? In the eurozone, there are signs that this year’s slump in manufacturing may be beginning to spill over to weigh on activity in the broader economy. Plenty of observers believe the US economy is destined to follow a similar path. Their fears may yet be realized, but so far there is no evidence the US economy is heading that way.
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Gavekal Research
Charles Gave
Oct 11th 2019
Please, Your Majesty, Do Nothing
Western democracies in the early 1990s stood unchallenged in the battle of big ideas. Alas, everything that has gone wrong in western economies over the last decade or so stems from the lessons that the technocracy took from this victory. Charles considers the mistakes and examines the investment consequences that must now follow.
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Gavekal Research
Vincent Tsui, Udith Sikand, Tom Miller, Arthur Kroeber
Oct 11th 2019
Audio & Transcript — Gavekal Research Call October 2019
Vincent outlined EM Asia's "great moderation", as inflation is diverging from other emerging markets, creating opportunities in bonds. Udith argued that Indian growth may be bottoming out but a bad banking picture means that equities may have more downside. Tom addressed the remaking of Asian supply chains in light of the US-China trade war.
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Gavekal Dragonomics
Xiaoxi Zhang
Oct 10th 2019
The Banks Still At Risk
The first wave of Chinese bank failures will not be the last. Over the summer, three smaller Chinese banks had to receive official assistance to continue operating. The problems that brought down those banks were not isolated issues, and there are other smaller banks still at risk. This report identifies the most troubled institutions.
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Gavekal Research
Tom Holland
Oct 10th 2019
At Home In The Range
Almost a month after missile attacks on key Saudi Arabian oil production and processing facilities pushed benchmark global oil prices up by 20% overnight, the market has moved on. Saudi Arabia has defied industry expectations by continuing to supply oil to the market in abundant quantities. The current market pricing reflects that.
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Gavekal Research
Udith Sikand
Oct 10th 2019
Video: India's Banking Blues
A tweet by the Reserve Bank of India caused a bit of a stir last week, saying that the “…Indian banking system is safe and stable and there is no need to panic…”. It was after a small regional bank had been effectively put into receivership. While this doesn't pose a systemic risk, it's another consequence of Indian banks’ decade-old bad loan problem.
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Gavekal Research
Will Denyer
Oct 09th 2019
Back To Balance Sheet Expansion
On Tuesday, Jay Powell confirmed that the US Federal Reserve will go back to growing its balance sheet once again following its meeting at the end of October. The aim is for the balance sheet to grow gradually along with the economy. While the Fed’s planned move is clearly positive for liquidity growth, it is likely to disappoint investors for two reasons.
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Gavekal Dragonomics
Tom Miller
Oct 08th 2019
The Belt And Road Slims Down
China is still signing up more countries for its Belt and Road Initiative, but money for Xi Jinping’s signature foreign policy is getting tighter. Growth in China’s overseas lending has ground to a halt, and overseas construction projects are declining. In this piece, Tom explains why a slimmer Belt and Road has become an economic necessity.
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Gavekal Research
Anatole Kaletsky
Oct 08th 2019
To Impeachment And Beyond
What will determine whether the global economic expansion and equity bull market will continue in the year ahead? The political upheavals which dominated in the past three years, such as the trade war, Iran oil sanctions and Brexit, have seemed to subside or become priced in. But new political noise is being generated by the threatened impeachment of President Donald Trump.
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Gavekal Research
Simon Pritchard
Oct 07th 2019
Hong Kong’s Core Problem
The Hong Kong government’s stated aim is to drive a wedge between radical protesters who are resigned to jail or worse, and a less committed group that it thinks will be cowed by increased penalties. Initial evidence suggests the strategy is a busted flush. Sunday saw large-scale illegal marches by mask-clad demonstrators before the now predictable violence unfolded.
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Gavekal Research
Nick Andrews
Oct 04th 2019
The German Spillover
Perhaps the most remarkable thing about this year’s slump in manufacturing is how few negative spillover effects it has had on demand in the broader economy—until now. Services PMIs for both the eurozone as a whole and for Germany took a sharp turn south in September. In Germany, the deterioration is making a technical recession all but inevitable.
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Gavekal Research
Will Denyer
Oct 04th 2019
Video: Where The Fed Stands
Investors are nervous about weak US data and a liquidity squeeze in the US repo markets. They are now looking to the Federal Reserve for reassurance. In this video, Will tells us what policy changes to expect from the Fed at the end of this month and why.
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Gavekal Research
Will Denyer
Oct 03rd 2019
Echoes Of 2000 Strike A False Note
First there was the WeWork IPO failure and a string of other flops. Now the S&P 500 has slumped -3% in just two days, leaving the index down -4.6% from its July high. As a result, nervous investors are wondering whether the US may be seeing the beginning of the bursting of a bubble, just as in 2000. Are the fears justified?
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Gavekal Dragonomics
Thomas Gatley
Oct 03rd 2019
The China Inc. Annual Report 2019
In the latest edition of his annual chartbook, Thomas outlines the fundamentals of China’s corporate sector. The latest downcycle in sales and profits was less severe than previous episodes, but private firms are still suffering from financial strains. The anemic bounce in credit growth points to little recovery in profits or capex in 2020.
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Gavekal Research
Louis Gave
Oct 02nd 2019
The Greater Good Versus Individual Liberty
Yesterday Hong Kong's streets were again the stage for violent clashes between protesters and police. At the heart of the conflict is a showdown between the shared identity in Hong Kong shaped by the common law system inherited by the British and the common narrative in China emphasizing the "greater good" over individual liberties.
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Gavekal Research
Vincent Tsui, Udith Sikand
Oct 02nd 2019
Strategy Monthly: An Asian Repricing
Asian inflation has decoupled from other emerging market regions and may be settling at a new permanently lower level. At the same time, lower Asian inflation also reflects weak capital spending and slower economic growth due to the global trade downturn. The best way to play this new low-inflation, low-growth era is with regional bonds.
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Gavekal Research
Anatole Kaletsky
Oct 01st 2019
The Upside For Europe
The euro is trading at its weakest against the US dollar since May 2017. Whether it falls further from here or finds support around current levels to establish a base for a rebound will depend mainly on whether Europe’s economic performance continues to deteriorate, or whether upside surprises are likely in the months ahead.
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Gavekal Research
Louis Gave
Sep 30th 2019
US-China Impressionism
It is sometimes said that getting a clear view of Chinese policy is impossible; the best you can hope for is an “impressionist” picture of what broadly is going on. Increasingly it looks as if this impressionism is catching. As if understanding China wasn’t hard enough, lately figuring out US policy towards Beijing has become a lot more complicated.
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Gavekal Research
Tan Kai Xian
Sep 27th 2019
Quantifying Trade War Risk
Investors seem to have grown somewhat blasé about the US-China trade war lately. Over 12 months after the outbreak of hostilities, the S&P 500 is up 2.2% year-on-year. Part of the reason for this nonchalance appears to be a belief that US growth and domestic profits are invulnerable to any escalation of the conflict. This belief may be mistaken.
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Gavekal Research
Vincent Tsui
Sep 27th 2019
Reasons To Truly Love Malaysia
In a bid to lessen currency depreciation pressure, three years ago Malaysia effectively closed down offshore trading in the ringgit. It won the battle but has been losing the war. Its asset markets remain unloved and Malaysia has a higher cost of capital than most regional rivals. Yet the time may be right to look again at Malaysia, at least from a fixed income stance.
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Gavekal Dragonomics
Andrew Batson
Sep 26th 2019
Macro Update: The Return Of Selective Easing
After a rocky few months of trade troubles, disappointing data and hawkish policy, China has shifted back to a more decisive focus on growth-supporting measures. This move should help support markets and the economy through end-2019. But as Andrew explains in this chartbook, the boost from this cautious “selective easing” is still limited.
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Gavekal Research
Charles Gave
Sep 26th 2019
Legal Is Not The Same As Legitimate
Democracy is in trouble. Everywhere the cause is the same: a massive conflict between legitimacy and legality. For the last 100 years or more, the split between left and right left anchored the legitimacy of any democratic government. Unfortunately, over the last couple of decades or so, the left has betrayed the people, while the right has betrayed the nation.
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Gavekal Research
Simon Pritchard
Sep 26th 2019
Video: Where Next Hong Kong?
Hong Kong’s leader Carrie Lam today begins a process of civic engagement aimed at bridging the divide between an unpopular government and a diffuse movement that has engaged in 17 weeks of violent protest. Simon discusses whether economic goodies can buy off dissent and assesses the chances of a compromise political settlement.
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Gavekal Research
Tan Kai Xian, Will Denyer
Sep 25th 2019
What If The Fed Has Finished Cutting
What happens to the US equity market if the Federal Reserve has already finished cutting interest rates? Last Friday, Will made the case for a rebound in US growth, but withheld judgement whether it would be driven by real growth or inflation. The prospect raises the very real possibility that the Fed may decide rates have been cut enough.
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Gavekal Dragonomics
Rosealea Yao
Sep 24th 2019
This Old House
China’s government has launched a new program to renovate older residential compounds, which some are touting as a massive new investment stimulus. As Rosealea explains in this piece, such hopes are misplaced. But the new spending will help cushion the impact of the cutbacks of the subsidies delivered through the slum redevelopment program.
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Gavekal Research
Udith Sikand
Sep 24th 2019
India’s Laffer Curve Gamble
India’s decision to cut its corporate tax rate from 30% to 22% has spurred a 7% surge in equities as investors bet on new capital spending reigniting a stalled growth cycle. The problem is that even if this fiscal easing spurs more business investment, the consumer side of India’s economy remains stuck in a low gear due to knottier problems.
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Gavekal Research
Cedric Gemehl
Sep 23rd 2019
Black Zero Or Green New Deal?
Investors and environmentalists alike got their hopes dashed on Friday. Their best-case scenario would have seen Berlin invoke a climatic emergency to override fiscal orthodoxy and roll out a stimulative program of green investment. In the event, the measures announced not only fell short of the green lobby’s expectations—they were budget-neutral.
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