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Gavekal Dragonomics
Wei He
Jan 06th 2021
The Renminbi Races Out Of The Starting Gate
The renminbi gained 1% against the US dollar in the first two trading days of 2021, leading China’s central bank to signal a pushback against appreciation by tweaking foreign-lending limits. In this Quick Take, Wei explains that such moves are likely to slow than stop the currency’s gains, as fundamentals still favor the renminbi.
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Gavekal Research
Louis Gave
Jan 05th 2021
The Asch Experiment We Inhabit
In the 1950s, US social psychologist Solomon Asch conducted a seminal experiment which showed that people were susceptible to conform with the group consensus, even when their eyes told them the answer was wrong. Looking at the Western response to Covid-19, policymakers have badly failed the Asch experiment. The conclusion must be that political risk in the Western world is now as great as it has been for a generation.
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Gavekal Dragonomics
Andrew Batson
Jan 05th 2021
Decoding The Assault On Alibaba
The antitrust investigation into Alibaba, following close on the heels of the cancellation of the Ant IPO, has raised big questions about the changing political environment for Chinese internet companies. In this piece, Andrew considers the best- and worst-case scenarios, and concludes that at a minimum, growth prospects have dimmed.
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Gavekal Research
Louis Gave
Jan 04th 2021
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?
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Gavekal Research
Louis Gave
Dec 22nd 2020
A Very Merry Christmas From Everyone At Gavekal
Unless something out of the ordinary happens (and given the year we’ve had, the bar is set quite high) this will be our last Daily of 2020. It is thus a chance for me to wish our readers a very Merry Christmas and to thank you for your support, friendship and interactions over the past year. As we never tire of saying at Gavekal, ideas presented in our research usually originate with our clients; or at least, the better ones do (we come up with...
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Gavekal Research
Anatole Kaletsky
Dec 22nd 2020
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.
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Gavekal Research
Yanmei Xie
Dec 21st 2020
A “Little” Stimulus For Christmas
Having agreed another fiscal stimulus, the US government is poised to give its population a US$900bn Christmas gift. This revives relief programs set up at the pandemic’s outset, testifying to both their success in keeping consumers and businesses solvent, and their popularity
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Gavekal Research
Louis Gave
Dec 18th 2020
What Will Stop The Dollar’s Decline?
On Thursday night the US dollar index broke below the 90 level and so put an exclamation mark on two months of weakness. This sell-off means that the DXY now trades on a 14-day RSI of 22.8. The dollar is thus about as “oversold” as it has been in recent years. And up until 2020, buying the US currency at “oversold” levels was a winning strategy, if only because it was in a structural bull market. However, in the past year, buying the dips (...
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Gavekal Dragonomics
Rosealea Yao
Dec 18th 2020
A Looming Correction For Iron Ore
Iron ore prices hit an eight year high in early December in response to a tight steel market. Rosealea writes that this uptick in steel demand, likely due to China’s strong steel-intensive export figures, is unsustainable and should subside in the new year—resulting in a correction for iron ore prices in the coming months.
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Gavekal Research
Charles Gave
Dec 18th 2020
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.
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Gavekal Research
Cedric Gemehl
Dec 17th 2020
The Return Of European Inflation
After averaging 1.2% YoY in 2019, the eurozone’s “harmonized” inflation rate went negative and settled at an abysmal -0.3% YoY in the last three months. Other price indicators have underwhelmed, as shown by the eurozone’s Citigroup inflation surprise index wallowing below -20%. In the US, by contrast, the same measure jumped back into positive territory after August. So what gives?
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Gavekal Dragonomics
Wei He
Dec 17th 2020
The Road To Policy Normalization
China’s economy is almost back to normal after Covid-19, and that means economic policy will also normalize: the question is not whether, but how. In this piece, Wei argues that the most likely policy settings for 2021 will be somewhat tighter fiscal policy and a deceleration in total credit growth, but no increase in policy interest rates.
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Gavekal Research
Vincent Tsui
Dec 16th 2020
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...
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Gavekal Dragonomics
Thomas Gatley
Dec 16th 2020
A Reluctant Executioner
MSCI announced on Tuesday the removal of 10 Chinese securities from its indexes in response to a US executive order. In this Quick Take, Thomas explains why MSCI’s narrow interpretation of the order leads to risk of more Chinese securities being added to the list, and how the decision adds to existing headwinds for Chinese equities.
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Gavekal Dragonomics
Dragonomics Team
Dec 15th 2020
Credit Has Peaked, Growth Has Not
China’s economic momentum continued to accelerate in November despite an October peak in credit growth, with exports and manufacturing investment taking the lead while more policy-dependent sectors plateaued. In this piece, the Dragonomics team explains why China is likely to maintain its strong economic growth through 1Q21.
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Gavekal Research
Anatole Kaletsky
Dec 15th 2020
Deal Or No Deal: Should We Really Care?
As the fifth season of the Brexit soap opera lumbers towards a predictably messy climax, the prospect of a sixth season will probably be enough to discourage international investors from considering British assets and sterling for another year or more. And rightly so. British assets should continue to be avoided because sterling at its present level represents a case of “heads I lose, tails I don’t win”.
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Gavekal Research
Louis Gave
Dec 15th 2020
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.
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Gavekal Dragonomics
Xiaoxi Zhang, Andrew Batson
Dec 14th 2020
The Re-Centralization Of Finance
China’s banking system has been steadily decentralizing for thirty years, with smaller and local banks gaining market share from the large, centrally controlled state banks. In this piece, Xiaoxi and Andrew show that this long-term trend has now come to a halt, and argue that the banking system will start to re-centralize in coming years.
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Gavekal Research
Tan Kai Xian
Dec 14th 2020
An Unfavorable Risk-Reward Bet
Today sees the US vaccination program initiated, and investors are enthused that some kind of return to normal life is finally becoming visible. Nowhere has this “glass half full” view been stronger than in the US corporate credit market, as yield spreads for both investment-grade and high-yield bonds have broken new lows. These moves have occurred despite treasury yields creeping higher, and are starting to look overcooked.
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Gavekal Research
Charles Gave
Dec 11th 2020
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.
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