In 2021, recovery, inflation and pandemic will have animated the markets, Analysis and opinions


by Marc Jones and Saqib Iqbal Ahmed

LONDON / NEW YORK, December 23 (Reuters) – The second year of the COVID-19 pandemic has been almost as intense as the first for financial markets: The rise in global equities continued, soaring prices of the energy and food drove inflation up and bond markets to falter as the market in China suffered a $ 1 trillion loss in technology and real estate.

To top it off, the Turkish lira has suffered from monetary policy under President Erdogan’s influence, crypto assets have taken off, retail investors have played off hedge funds, and although “green” finance is all the rage, oil and gas were the winners, with increases of over 40% and 50% respectively.

1/2021, A GOOD CRU FOR SHARES

The MSCI ACWI World Index, which includes 50 developed and emerging markets, garnered $ 10,000 billion in additional capitalization, an increase of 13%, driven by signs of recovery and the torrent of stimulus from major central banks.

The divergences in the global equity market, however, have been glaring.

The three leading Wall Street indices have so far risen by 20% to 25% over the year. But nearly 65% ​​of the Nasdaq 100’s gains, which encompass 3,780 stocks, can be attributed to just five groups: Microsoft, Alphabet, Apple, Nvidia and Tesla, according to Bank of America.

European banks had their best year in more than a decade, gaining 33%, but the emerging market index fell 7% due to the 30% drop in Chinese tech stocks listed in Hong Kong, which suffered from measures taken by Beijing to regulate the sector.

“We think US stocks are absolutely delusional,” said Tommy Garvey, a member of the asset allocation team at GMO, adding that valuations in most other parts of the world were also strained.

2 / OIL AND INDUSTRIAL METALS ARE CLIMBING

Commodity markets rose sharply as the most resource-hungry economies attempted to return to some normalcy after the economic recession caused by the pandemic.

Oil and natural gas prices have posted gains of around 40% and 50%, respectively, unprecedented in five years, rising well above their pre-pandemic levels.

Copper on the London Metal Exchange, often seen as a key indicator of real economic activity, hit a record high in April and jumped nearly 25% for the second year in a row.

Zinc showed a similar increase while aluminum climbed 40%, making 2021 its best year since 2009.

Gold has fallen and in agricultural markets, corn has increased by 25%, sugar by 20% and coffee by 67%.

3 / CHINA-YEAR TAKEN BETWEEN REGULATORY OFFENSIVE AND EVERGRANDE

In China, Beijing’s tightening of regulations against large internet companies, combined with a crisis in the real estate sector, has cost markets more than $ 1,000 billion this year.

Alibaba, the Chinese counterpart of Amazon, fell nearly 50%. The Nasdaq Golden Dragon index, which includes Chinese companies listed in the United States, is down 43% while the woes of Evergrande have given a cold sweat to investors who fear the bankruptcy of this real estate giant.

China’s high yield debt market lost around 30%, with real estate company bonds accounting for 67% of the high yield listed debt index.

“If home sales continue to fall at the current rate, (Chinese) GDP could easily be cut by an additional 1%,” warned Sailesh Lad, head of emerging markets bond at AXA Investment Managers.

4 / DECLINING US BOND MARKET

Rampant inflation and the prospect of monetary normalization from the major central banks have made 2021 a difficult year for government bond markets.

Ten-year U.S. Treasuries – the global benchmark for bond investors – are expected to lose 2%, their first decline since 2013.

On the positive side, riskier bonds with credit ratings below or equal to CCC gained around 10% in the US and Europe, and inflation-linked bonds also performed well.

5 / THE “SAME STOCKS” FRENZY

Individual investors have taken Wall Street by storm this year, sparking dramatic swings in large volumes of trading in “same stocks”, the nickname given to the stocks most sought after by stock marketers.

The share of video game store chain GameStop is expected to end the year up more than 700%. AMC Entertainment, owner of cinemas, is posting a gain of nearly 1,300% over the year for the time being.

Electric vehicle maker Tesla has erased its losses at the start of the year, but other funds or stocks linked to innovation – such as the ARK Innovation Fund, certain stocks in the solar energy sector, BioTech stocks and company with no SPAC operational activity – are down 20% to 30%.

6 / THE DIVING OF THE TURKISH POUND

The fall of the Turkish lira has amplified this year, pushing its all-time low a little further.

The difficulties worsened in March when President Recep Tayyip Erdogan sacked the governor of Turkey’s central bank, replaced by a former member of his party, Sahap Kavcioglu. But the situation got even worse when the latter started to cut interest rates. Since September, rates have been cut by 500 basis points.

The national currency began a rally this week after the government unveiled a plan to stem the currency’s depreciation, but the pound remains down more than 40% on the year.

7 / CENTRAL BANKS AND THE INFLATION PUZZLE

Soaring inflation became a major concern for investors in 2021, as the pandemic disrupted supply chains as demand continued to grow.

Inflation in the United States accelerated in November to reach its highest rate since 1982. Faced with soaring prices, the Federal Reserve announced in December that it would end its purchases earlier than expected. bonds and the Bank of England became the first of the world’s major central banks to increase the cost of credit since the start of the COVID-19 pandemic.

Other major central banks are expected to follow next year on the path to monetary tightening. Some banks in major emerging markets are already well advanced in the process.

8 / SUBMERGED EMERGING MARKETS

Investors had high hopes for emerging markets (EM) at the start of the year, but struggles in China and the length of the pandemic caused equities in emerging economies to lose 7%.

Government bonds denominated in local currency also suffered, losing 9.7%. Dollar-denominated ones performed a little better, especially in oil-producing countries, but the JP Morgan EM currency index, which excludes the Chinese yuan, lost nearly 10%.

“China has been the huge story of the year,” said Jeff Grills at Aegon Asset Management, adding that 2022 performance for emerging markets is likely to depend on the speed and scale of the rate hike. and holding growth.

9 / THE MADNESS OF CRYPTOASSETS

2021 has been an eventful year for cryptocurrencies, notably with bitcoin that approached $ 70,000, “meme coins” worth billions of dollars and a vast Chinese repression.

Bitcoin’s nearly 70% jump may seem paltry compared to the 300% explosion in 2020, but the advance came despite a Chinese crackdown that in May caused a significant drop in the most famous cryptocurrency. .

Dogecoin, a cryptocurrency created in 2013, has soared more than 12,000% since the start of the year to peak in May before losing nearly 80% in mid-December.

The market for “non-fungible tokens” (NFTs) – a collectible digital good whose authenticity and uniqueness are guaranteed by the “blockchain” system – has also exploded among the general public. A digital collage by American artist Beeple sold for almost $ 70 million at Christie’s in March, making it one of the three most expensive works by a living artist to ever auction.

10 / ECOLOGICAL TRANSITION

Green bond issuance is set to experience another record year, reaching nearly $ 500 billion.

The “ESG” version of MSCI’s global equity index is up more than 2% from the classic version, while China’s greenest equity index has jumped more than 40%.

(With Yoruk Bahceli in Amsterdam, Noel Randewich in San Francisco, Tom Wilson and Elizabeth Howcroft in London; French version Laetitia Volga, edited by Blandine Hénault)




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