Louis Gave: China Still Leapfrogging The West | Sell NASDAQ, Buy Asia & Latin America
Summary
- China has effectively "won" the trade war by de-westernizing supply chains and achieving energy dominance; they now produce more electricity than the US and Europe combined at a fraction of the cost.
- A major macro shift is occurring: Asian capital is repatriating (leaving US markets) due to tax changes in Korea and likely Japan, ending the era of Asia acting as a "deflationary black hole" for the West.
- The US Dollar is entering a structural bear market, while Asian currencies (RMB, JPY, KRW) are set to appreciate significantly.
- US Tech (NASDAQ) is vulnerable due to the withdrawal of Asian liquidity, while Latin America (specifically Brazil) is the top investment destination due to falling rates and US geopolitical protection ("Monroe Doctrine 2.0").
- US energy policy may pivot back to coal to lower electricity costs; if US coal stocks outperform, it signals a successful industrial pivot.
Trade Ideas
Gave states, "The trend of Asian outperformance... Asian currency appreciation... has started." He highlights Korea's tax code change favoring domestic investment and the Yuan's appreciation. A stronger currency combined with government incentives to invest domestically creates a "double engine" for returns in Asian equities (currency gain + asset price gain). Korea (EWY) is specifically highlighted as undervalued with policy tailwinds. LONG Broad Asia or Korea specifically to capture the repatriation of capital. Global recession dampens export demand; geopolitical flare-ups in the Taiwan Strait.
Gave notes that Asian capital (specifically from Korea, Japan, and China) has historically funded US deficits and bought US tech stocks (Microsoft, Amazon), but this trend is reversing due to tax incentives for repatriation and a strengthening Yuan/Yen. If Asian investors stop recycling their trade surpluses into US assets to bring money home, the marginal buyer for US large-cap tech disappears. This liquidity drain coincides with high valuations, creating a setup for underperformance. SHORT US Tech/Growth as capital flows reverse back to the East. AI mania continues to drive flows regardless of foreign liquidity; US rates drop faster than expected.
Louis Gave
Founding Partner and CEO of Gavekal Research
Gave argues the only way for the US to compete with China's industrial base is to lower electricity costs rapidly, likely by burning coal. He suggests watching US coal stocks: "If the US coal stocks start... really ripping... that will be a sign." Environmental dogmas are shifting due to economic necessity. If the US pivots to "cheap energy" over "green energy" to re-industrialize, domestic coal producers will see volume and multiple expansion, similar to the recent gold miner rally. WATCH/LONG US Coal producers as a proxy for US industrial policy shifts. US policy remains strictly ESG-focused; natural gas prices remain too low to justify coal switch.
Louis Gave
Founding Partner and CEO of Gavekal Research
Gave identifies Brazil as his #1 pick for the next 5-10 years, noting that Latin American interest rates are set to fall 150-200 basis points, and the US has implicitly guaranteed the region's solvency (e.g., bailing out Argentina) to keep China out. Falling interest rates in Brazil (from high levels) historically lead to massive equity rallies (consumers buy cars/homes). Combined with a "Monroe Doctrine" put option from the US, the risk premium for LatAm assets is collapsing. LONG Brazil and Latin America for rate-cut sensitivity and geopolitical safety. Fiscal indiscipline in Brazil; commodity price collapse.
Louis Gave
Founding Partner and CEO of Gavekal Research
Gave believes being long semiconductors today is a bet that "China won't crack the code," which he views as a "terrible bet" given China is pouring unlimited capital and talent into the sector. The semiconductor trade is crowded and relies on infinite demand. However, China is rapidly increasing supply (commoditizing older chips first), and new AI software (like DeepSeek) is proving to be more efficient, requiring fewer chips than forecasted. AVOID US Semiconductors due to looming supply gluts from China and efficiency gains in software. US export controls successfully cripple China's progress; AI hardware demand outpaces all efficiency gains.
Louis Gave
Founding Partner and CEO of Gavekal Research
Gave predicts the Japanese Yen (and Korean Won) will appreciate as the "deflationary black hole" of weak Asian currencies closes. As capital repatriates to Asia and the US dollar weakens due to deficits, the Yen is the primary beneficiary of the unwinding "carry trade" and valuation mean reversion. LONG Yen as a currency play against the USD. Bank of Japan refuses to tighten policy; US rates remain higher for longer.
Louis Gave
Founding Partner and CEO of Gavekal Research
Gave notes that farm productivity in the emerging world is currently very low but is "going through the roof," leading to increased supply. Higher global agricultural productivity leads to structural oversupply of soft commodities, capping price upside even in a general commodity bull market. AVOID Agricultural Commodities. Severe weather events (droughts/floods) disrupting global supply chains.
Up Next
This Wealthion video, published February 19, 2026, features Louis Gave discussing AIA, EEMA, EWY, QQQ, XLK, ARCH, CEIX, BTU, EWZ, ILF, SOXX, SMH, FXY, DBA. 7 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Louis Gave · Tickers: AIA, EEMA, EWY, QQQ, XLK, ARCH, CEIX, BTU, EWZ, ILF, SOXX, SMH, FXY, DBA