Most Recent
Gavekal Research
Video: The Data Center Constraint
Tan Kai Xian
10 May 2024
Data centers are emerging as massive users of electricity that power-producers in many economies are struggling to serve. Data centers are also large-scale users of water, which is a scarce resource in many regions. In this video, Kai Xian discusses whether such constraints will impede the rollout of AI applications and thus hinder the hoped-for productivity improvement they promise to deliver.
Gavekal Research
The Message From Recent Corporate Events
Louis-Vincent Gave
10 May 2024
It seems pretty obvious that for the past 15 years or so, the US tech industry has sucked most of the oxygen out of the room. This is true for capital allocation and stock market performance, and it follows that the same has been true for human resources/talent hiring as well. Looking forward, this situation raises three possibilities.
Gavekal-IS
Surprise, Surprise
Didier Darcet
9 May 2024
Last week, the US equity market was spooked by various updates about inflation and economic growth. The surprise effect lies at the heart of two disciplines that occupy Didier, as he explains in this piece.
Gavekal Research
Towards A Reverse Asian Crisis
Charles Gave
9 May 2024
On Tuesday, Louis argued that China could be on the cusp of a new deflationary boom. Charles extends this argument by positing that we could be about to enter a reverse Asian Crisis, with Europe and the US in the role of Asia in 1997, and Asia and China in the role of the International Monetary Fund.
Gavekal Dragonomics
The Limits To Renminbi Depreciation
Wei He
The Travel Boom Normalizes
Ernan Cui
Macro Update: Supply Outpaces Demand
Andrew Batson, Dragonomics Team
The Worsening Property Outlook
Rosealea Yao, Xiaoxi Zhang
What Are State Assets For?
Andrew Batson
Xi’s Vision For Finance
Xiaoxi Zhang
The Middling Growth Trap
Wei He, Dragonomics Team
Global Growth To The Rescue
Wei He
Benchmarking Social Housing Progress
Rosealea Yao
Migration Stagnation
Ernan Cui
More Research
Firing Up Sweden’s Second Cylinder
Cedric Gemehl
Two Cheers For Persistent Inflation
Anatole Kaletsky
The Energetic Danse Macabre
Tom Holland
The China Quandaries
Louis-Vincent Gave
Geniality Versus Reality
Yanmei Xie
The Big Engine That Could
Will Denyer, Tan Kai Xian
Assessing The Bull Market In European Defense Stocks
Cedric Gemehl
Webinar: China's Property Puzzle
Rosealea Yao, Xiaoxi Zhang, Christopher Beddor
The Upside Potential For Offshore Chinese Stocks
Thomas Gatley
Video: Can Yen Intervention Work?
Udith Sikand
Gavekal Research
The China Quandaries
Louis-Vincent Gave
7 May 2024
China has become another country to many global investors, who now consider the market uninvestible and so rarely choose to visit. They are missing out on seeing transformational changes whose import you only really grasp when in the country, argues Louis. In this piece, he explains that the most likely outcome is the move into an inflationary boom.
The global view
Sell In May?
Even firm advocates of inflationary boom trades shouldn’t be surprised when commodities pull back. Nonetheless, Tuesday felt a little off; as commodities pulled back, nothing else rallied. In short, Tuesday wasn’t so much a “rotation day” as a “liquidation day.” In the S&P 500, nine stocks fell for each one that rose. So what lies behind this simultaneous sell-off in gold, oil, commodities, bonds and stocks?
Short Answers To Big Questions
Having spent the past week on the road meeting with clients, Louis thought it might be interesting to review the most pressing questions that were thrown his way. In this piece, he tackles everything from Asian currency ructions and the state of the US tech market to the prospects for gold.
Turning Turkish II
In this paper, Louis and Charles explore the disturbing possibility that it may not be that stocks are in a bubble, but that developed world bond markets—and the currencies on which they are based—are suffering a structural erosion of their value, causing investors to seek safety in assets such as equities and gold with intrinsic real-economy worth.
A Question To Challenge The Deflationary Mindset
With rising US treasury yields causing pain in the currency markets and now among US growth stocks, investors will be wondering what the rise in yields will break next. Could rising yields break the back of the gold bull market? Or the unfolding emerging market boom? What about economic growth in general? In such an environment, are government bonds still the default risk-free asset?
Test Your Knowledge
Which among these regions has the lowest vacancy rates for data centers?
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Chart of the Week
After a steady upward march in the noughties, India’s share of global goods exports has stagnated at under 2% over the past decade. By contrast, India’s share of global services exports has risen consistently over the same period to just under 4.5%. India’s comparative advantage in services has led some to argue that India should pursue a services-led growth model. However, the relatively low labor intensity of high-value-added service sectors like IT means that services alone cannot solve India’s chronic problem of disguised unemployment.
Open Chart
Gavekal Research
Essential Reading: A Book For Every Week Of The Year
Gavekal is often asked for a recommended reading list. So, here it is: a book a week that everyone interested in the world of macro investing—whether hoary veteran or eager apprentice—can benefit from reading.
US economy & markets
The Big Engine That Could
Back in November, we highlighted four reasons to expect US consumer demand to remain robust: (i) a tight labor market and growing aggregate wages; (ii) a positive wealth effect from higher asset prices; (iii) growing consumer credit, and (iv) lower oil prices. Let’s update each point in turn.
Inflation, Credibility And Currencies
Is inflation good or bad for your currency? If you are Argentina, Turkey, Nigeria or Zimbabwe, the answer is that inflation has been catastrophic for your exchange rate. On the other hand, the acceleration of US inflation this year has been associated with US dollar strength. So, the answer is “it depends.” And what it depends upon is whether or not your central bank is considered serious and credible.
Big Versus Small: America’s Two-Speed Economy
Investors greeted 2024 by cheering an apparent disinflationary boom. Then, inflation picked up in the first quarter and markets began to clock an inflationary boom. Just as investors were settling down, Thursday’s GDP release threw a spanner in the works. Will and Kai Xian seek to understand this shifting dynamic with reference to a two-speed dynamic that has been affecting different areas of the US economy differently.
The Repricing Has Further To Run
As of Wednesday’s close, the S&P 500 was down -4.4% from its end-March high as the market continued to price in the realization that with inflation reaccelerating, US interest rates will remain higher for longer. This repricing may have further to run.
Gavekal Dragonomics
Webinar: China's Property Puzzle
Rosealea Yao, Xiaoxi Zhang, Christopher Beddor
3 May 2024
China’s property market is off to an awful start to 2024, and the government’s efforts to shore up the sector appear to be gaining no traction. Rosealea Yao and Xiaoxi Zhang join Christopher Beddor to unpack what exactly is driving the recent weakness and why policymakers are not doing more to help, as well as what it all means for commodity markets, the financial sector and economic growth ahead.
Emerging markets
Webinar: Into The Upswing
In this webinar Gavekal’s analysts review the themes driving growth across the world’s major economic regions, and discuss how macro developments are likely to drive financial markets over the remainder of 2024.
Webinar: Animal Spirits In The Emerging Markets
While US tech stocks have been getting all the publicity, capital has quietly been flowing into emerging market investments over recent months. To gauge market prospects over the rest of 2024, Udith Sikand examined the macroeconomic outlook for the major emerging markets ex-China, while Thomas Gatley assessed the chances of a revival of animal spirits in the Middle Kingdom.
EM Debt Market Issuance Cranks Up
Heightened US bond market volatility has often coincided with emerging-market assets incurring higher risk premiums. That was then. This cycle has differed since emerging markets have survived the most aggressive Fed tightening cycle in a generation with minimal fuss. So what accounts for EMs’ apparent new-found resilience?
The China-EM Equity Decoupling
Global investors have long treated Chinese and other emerging-market equities as a single asset class. Those days may now be over. Thomas and Udith examine why declining US treasury yields and a weakening dollar have spurred capital flows into emerging markets, but foreign investors continue to pull money out of Chinese equity markets.
Latest video
Gavekal Research
Video: The Data Center Constraint
Tan Kai Xian
10 May 2024
Data centers are emerging as massive users of electricity that power-producers in many economies are struggling to serve. Data centers are also large-scale users of water, which is a scarce resource in many regions. In this video, Kai Xian discusses whether such constraints will impede the rollout of AI applications and thus hinder the hoped-for productivity improvement they promise to deliver.
India chartbook
Gavekal Research
India Macro Update: Shifting Into Overdrive
Udith Sikand, Tom Miller
27 Mar 2024
India is cementing itself as a reliable engine of growth for the global economy, state Udith and Tom. Although headline GDP figures exaggerate the robustness of India’s growth, there is no denying the favorable tailwinds Private sector capital spending, bonds, and to a lesser extent the rupee, should offer upside in the near term. By contrast, the prospects for Indian stocks—where regulators are looking to curb signs of excess—are less rosy.
China chartbook
Gavekal Dragonomics
Macro Update: Supply Outpaces Demand
Andrew Batson, Dragonomics Team
26 Apr 2024
China’s growth has stabilized but its imbalances remain. Prices are falling, inventories are rising, capacity utilization is low and hiring is weak. The government’s strategy of prioritizing supply over demand risks entrenching this dynamic. In our quarterly chartbook, the Dragonomics team breaks down the latest economic developments and reviews the implications.
Europe's economy
Firing Up Sweden’s Second Cylinder
Coming into 2024, it seemed the Swedish economy was well placed to benefit from a turnaround in Europe’s manufacturing and monetary cycles. This view still holds. But the reality is that for now, the Swedish economy is only firing on only one cylinder. This is where the Riksbank's rate cut on Wednesday will help.
Assessing The Bull Market In European Defense Stocks
Given the brutal land war unfolding in Ukraine, the last two years have forced investors in European equities to climb a wall of worry. No such reticence has affected armaments-industry investors however. European Union nations have become Kyiv’s largest weapons supplier and investors are betting that they will increase their military spending for years to come in response to threats from the east.
Is The Bank Of England More Like The ECB Or The Fed?
US inflation has ticked up again, and expectations have changed drastically. Today, the market is only pricing in one Fed rate cut by November. However, European markets expect the ECB to be more dovish, and are still pricing in an 80% probability of a June rate cut, with a sizable chance of a second in July. So where does this leave the Bank of England?
The Impact Of Big Government
The Covid pandemic was a watershed moment, spurring Western governments to get more involved in economic management than any time in the last 50 years. Kai Xian and Cedric assess the way that Covid-era fiscal support has been transmitted to private sector balance sheets—and how this is affecting current economic performance.
Gavekal Research
Strategy Monthly: India’s Juggernaut Gathers Momentum
Udith Sikand, Tom Miller
4 Dec 2023
In a world desperately short of good growth stories, India stands out as the world’s fastest-growing major economy, with favorable demographics and geopolitical tailwinds. Thursday’s GDP release showing growth at a scorching 7.6% YoY will only reinforce the excitement among investors.
Equities
The China Quandaries
Short Answers To Big Questions
Webinar: Into The Upswing
Turning Turkish II
The Repricing Has Further To Run
Webinar: Forward To The 1970s? Investing For An Inflationary Age
Oil & commodities
The Energetic Danse Macabre
Honestly, Why Bother With Sanctions?
The 2024 Commodity Surge
How High Will The Oil Price Go?
Trump 2
The Long And Short Of Energy Risk
China tech
Vietnam’s Bamboo Diplomacy
Big Tech’s Rearguard Action
TikTok, Big Tech And Risk Premiums
Video: The Importance Of TikTok
The Coming Price War In Chips
Geopolitical Uncertainty And Record Valuations On Semi Stocks
The Inflation Question
Two Cheers For Persistent Inflation
What is the Federal Reserve’s “theory of inflation” and is it empirically correct? This may sound like an abstruse academic question, but for Anatole, it has become the most important issue driving financial markets around the world today. In this piece, he explains how a circular belief in the Fed’s capacity to manage inflation because it wills it so, may come undone.
A Question To Challenge The Deflationary Mindset
With rising US treasury yields causing pain in the currency markets and now among US growth stocks, investors will be wondering what the rise in yields will break next. Could rising yields break the back of the gold bull market? Or the unfolding emerging market boom? What about economic growth in general? In such an environment, are government bonds still the default risk-free asset?
Three Charts To Watch
Charles today is chiefly concerned about US inflation, the French economy and a potential downturn in it, causing a euro crisis. As a result, he is monitoring these three charts.
US Reflation And The Markets
At the start of 2024, the US seemed to be settling into a disinflationary boom. However, over the first three months of 2024, CPI rose at an annualized rate of 4.6%, while core CPI rose 4.5%. This qualifies as enough of a trend to significantly delay rate cuts, if not take them off the table entirely, and it is time to reassess the outlook for inflation, interest rates and markets.
