Recoveries, reflation and wrecking balls -Breaking
Marc Jones, Saqib Iqbal Ahmad
LONDON/NEW YORK -The second year in which the COVID pandemic swept the global financial market has been almost as intense as the previous.
Stock bulls remain in control, rising energy and food prices have turbocharged inflation and rattled the bond markets. China, however, has witnessed $1 trillion in losses in heavyweight tech sectors and in property.
Turkey’s exit from 2021 is a disaster for its currency, and bitcoin and other cryptocurrency have beaten it. Small-time traders also gave some hedge funds a beating, and even though green has become mainstream, oil and gas are the major winners with an increase of about half and 48% respectively.
1STOCKS UNTIL YOU DROP
The MSCI 50 country world index, which is a composite of the MSCI and Nasdaq, has seen an increase in value by more than $10 trillion (or 20%) thanks to COVID signs and the flood of central bank stimuli that have continued to flow. It has gained 27% while tech-heavy Nasdaq has seen a 22% increase.
European banks had their strongest year for over a decade, with 34% growth, but emerging market equity have suffered a terrible 5% drop, mainly due to a 30% fall in Hong Kong-listed Chinese tech, which was impacted by Beijing’s attempts to restrict their power.
Tommy Garvey of Asset Manager GMO’s asset allocation team stated that U.S. equity prices are “absolutely bonkers” and added that other valuations were equally expensive.
The SPOILS OF 2/OIL
The world’s most resource-hungry and powerful economies have attempted to bring back some normalcy, but commodity markets have suffered. Respective oil gains of 48% and 50% respectively are at their highest in five year and have pushed prices far above the pre-pandemic level.
The key industrial metals have risen nearly 25% in the past two years after hitting a new record in April. Zinc saw a similar increase, and aluminium saw a 40% gain in the best year since 2009.
While precious metal gold is down, the agrimarkets are thriving with corn up nearly 25% and sugar up 22% respectively. Coffee 70% has also seen a significant increase.
3/BEARS IN CHINA SHOP
China’s clampdown on big online companies and a crisis in the property sector have combined to wipe out over one trillion dollars from its markets.
Alibaba China’s Amazon has lost nearly 50% of its equivalent on the NYSE: The U.S.-listed Chinese stock market index is at 42% decline, and Evergrande, a home builder has experienced its worst default ever.
The Chinese high-yield (or ‘junk) bond market has suffered a significant loss of 30%. The 67% main ICE index (NYSE:) Chinese high yield index is owned by bonds issued by property firms.
AXA Investment Managers’ Head for Active Emerging Markets Fixed income Sailesh Led cautioned that “if home sales drop at the current rate they are, you could easily reduce (Chinese GDP) by another 1%.”
4/BONDS: NO TIME FOR BUY
It has been a challenging year for the bond market due to high inflation and central banks turning off their money taps.
U.S. Treasuries, the benchmark global for investors in government debt, are expected to suffer a loss around 3%. German Bunds had fallen around 9% by Dec. 22, 2013.
Positively, only the CCC-rated bonds (the most dangerous corporate junk bond) have earned around 10% in the U.S. as well as Europe.
Unsurprisingly, inflation-linked bonds also did well with the U.S. TIPs return 6%; euro-denominated counterparts earn 6.3%, and British linkers make 3.7%.
This year Wall Street was flooded with retail traders, resulting in eye-popping trades and large volumes in so-called “meme” stocks.
GameStop’s shares rose almost 2,500% in January but ended the year with 700%. AMC Entertainment, another popular meme site, still has an increase of about 1,200%, but it rose as much as 3200% in the early part of June.
Tesla (NASDAQ):, the king of electric cars, has recovered from an early year skid. But other funds or stocks linked to innovation – such as the ARK Innovation Fund and some solar energy stocks, BioTech shares and special purpose acquisition companies or SPACs – are down 20% to 30%.
6/TURKISH LIRA TAKES a BATH
Slumps in Turkish Lira are not uncommon these days. However, this year’s collapse was remarkable even for its standard.
The situation turned sour in March after President Tayyip Erdan, a self-declared enemy and aggressor of interest rates was elected to replace another governor at the central bank. It has only gotten worse after his bank’s new chief began reducing rates in September.
Although there was a slight bounce in the lira after the government devised an unconventional plan to reduce the pain, it is now down more than 40% and government bonds are being repurchased.
Inflation rose to the forefront of investors’ concerns in 2021, as the pandemic disrupted global supply chains and made it more difficult for everyone to keep up with demand.
The Federal Reserve declared this month that it would end pandemic-era bonds purchases earlier than expected. This was in response to U.S. inflation at its highest level since 1980s. Also, the Bank of England became G7’s first central bank to raise interest rates after the COVID epidemic.
The next year will see the addition of other major central banks, although some major emerging markets have already made significant progress in this process.
Many people were optimistic about emerging markets, even though they had high expectations.
China’s woes and COVID persistence have caused EM stocks to lose 5%. That is compared with a 20 percent rise in the world index, and a 27% increase on Wall Street.
The 9.7% loss in local currency EM bonds has also been a problem. Although dollar-denominated bonds performed better in oil producing countries, J.P. Morgan’s EM currencies Index has lost almost 10%.
Jeff Grills from Aegon Asset Management, head of emerging market debt said, “China was the big story of this year.” He also stated that the next year will be about how fast and far interest rates can rise, and whether growth continues.
9/CRYPTO CONTROLS IT
At nearly $70,000. “Memecoins” valued at billions of US dollars. A blockbuster Wall Street listing. China crackdown. 2021 was the biggest yet in cryptocurrencies.
While Bitcoin’s nearly 60% rise may not seem significant compared with last year’s 300% increase, this has happened despite a Chinese crackdown which caused it to almost double in price.
The digital token ‘” was launched as a joke in bitcoin in 2013. It soared more than 12,000% since the beginning of 2013 to an all time high in May, before plummeting to 80% in mid-December.
The mainstream has also seen a rise in non-fungible tokens, which are strings of code on the blockchain that provide unique ownership to digital art, videos and tweets. In May, a digital collage created by Beeple in the United States sold at Christie’s for almost $70 million. This made it one of three highest-selling pieces ever by an artist living today.
This year, the dream of going green is still front-and-center. Nearly half a billion dollars is expected to be issued in green bonds this year. This will make it another record-setting year. While the MSCI flagship global stocks index, “ESG”, is more than two percentage points higher than its standard counterpart, China’s most environmentally-friendly stocks index has risen more than 45% despite other sector’s slumps.