Global Markets in 2021: Recoveries, reflation and wrecking balls

For global financial markets, the second year of the COVID pandemic has been almost as dramatic as the first.

Equity bulls remained firmly in charge, soaring energy and food prices inflated inflation, rocking bond markets, while China saw $ 1 trillion in losses in its markets. technology and real estate sectors.

On top of all this, Turkey is emerging from 2021 in monetary chaos, bitcoin and other cryptocurrencies have crushed it, small traders have given some hedge funds a beating and although green has become mainstream, dirty oil and gas were the big winners, up about 50 percent and 48 percent, respectively.

MSCI’s 50-country Global Index added more than $ 10 trillion, or 20%, on signs of a recovery in COVID and the torrent of central bank stimulus that continued to pour in. The S&P 500 gained 27%, while the highly technical Nasdaq is up 22%.

European banks had their best year in more than a decade with a 34% gain, but emerging market equities lost 5%, as a 30% drop in the affected Hong Kong-listed Chinese technology by the measures taken by Beijing to limit their influence.

“We think US stocks are absolutely nuts,” said Tommy Garvey, a member of the asset allocation team at GMO asset manager, adding that valuations in most other parts of the world were also expensive. . hungry economies have tried to return to some sort of normalcy. The respective gains of 50% and 48% for oil and natural gas are the best in five years and have left prices well above pre-pandemic levels.
Copper, a key industrial metal, hit an all-time high in April and jumped nearly 25% for the second year in a row. Zinc saw a similar gain, while aluminum made about 40% in its best year since 2009.
Gold, the precious metal, fell, but agro-markets flourished, corn up nearly 25 percent, sugar up 22 percent and coffee 70 percent.

China’s crackdown on its large online businesses, combined with a crisis in the real estate industry, has wiped more than $ 1 trillion from its markets this year. Alibaba, the Chinese equivalent of Amazon, fell nearly 50%. The U.S.-listed Chinese equities gold dragon index is down 42%, while homebuilder Evergrande has just become its biggest flaw ever.

This sent a wrecking ball crashing into the Chinese high yield or “spam” bond market, which lost around 30%. The bonds of real estate companies represent 67% of the main Chinese high yield index ICE. “If home sales continue to decline at the same rate as they are now, you could easily reduce (Chinese) GDP by 1%,” warned Sailesh Lad, head of emerging market bond assets at AXA Investment Managers.

Soaring inflation and major central banks starting to shut down the money taps have made the year difficult for bond markets. U.S. Treasuries – the global benchmark for government debt investors – are expected to post a loss of around 3%, their first red result since 2013, while German Bunds were down around 9% as of December 22.

On the plus side, the riskiest tranche of “junk” corporate bonds – those rated CCC and below – rose about 10% in the US and Europe. Unsurprisingly, inflation-linked bonds also performed well, with US TIPs returning 6%, euro-denominated equivalents gaining 6.3% and British linkers gaining 3.7%.
Retail traders have invested heavily on Wall Street this year, resulting in mind-boggling moves and huge trading volume in so-called “meme” stocks.

GameStop shares rose nearly 2,500% in January, but will end the year up 700%. AMC Entertainment, another memes favorite, is still up about 1,200% for the year, although it was up 3,200% in early June.

Tesla, the dean of the electric car industry, recovered from a slippage earlier this year. But other innovation-related funds or stocks – such as the ARK Innovation Fund and some solar power stocks, BioTech stocks, and special purpose acquisition companies or SPACs – are down 20 to 30. %.
Drops in the Turkish lira are hardly uncommon these days, but this year’s explosion has been spectacular, even by its standards. Things started to take a turn for the worse in March when the self-proclaimed enemy of interest rates, President Tayyip Erdogan, replaced another central bank governor. But it has worsened since its new bank manager started cutting rates in September.
Despite a modest rebound after the government outlined an unorthodox plan to curb the pain, the pound is still down more than 40% for the year and government bonds have been hammered.

Soaring inflation has become a major concern for investors in 2021, as the pandemic has disrupted the global supply chain and made it difficult to meet demand for everything from microchips to potato chips.
With U.S. inflation reaching its highest level since the 1980s, the Federal Reserve this month announced it would end its bond purchases during the pandemic earlier than expected and the Bank of England became the first G7 central bank to increase interest rates since the COVID epidemic.
Other major central banks are expected to follow next year, but some of the major emerging markets are already well advanced in the process.

Investors had high hopes for emerging markets as the year approached, but many were disappointed. China’s struggles and the persistence of COVID have seen emerging market equities lose 5%, which looks even worse compared to a 20% rise in the global index and a 27% jump on Wall Street.
Emerging country government bonds in local currency also performed very well, losing 9.7 percent. Dollar-denominated bonds performed somewhat better, especially in oil-producing countries, but the JP Morgan emerging currency index, which excludes the Chinese yuan, lost nearly 10%.
“China has been the big story of the year,” said Jeff Grills, head of emerging market debt at Aegon Asset Management, adding that next year would likely be about the speed and scale of the rising interest rates and holding up growth.

Bitcoin at nearly $ 70,000; multi-billion dollar “memes”; a successful Wall Street listing and a broad Chinese crackdown: 2021 has been the craziest cryptocurrency yet, even by industry freewheeling standards.

Bitcoin’s nearly 60% jump may seem paltry compared to last year’s 300% surge, but it came despite a Chinese crackdown in May that saw its price almost in half.

Dogecoin, a digital token launched in 2013 as a bitcoin-derived joke, has climbed more than 12,000% year-to-date to an all-time high in May – before dropping around 80% in the middle. December.

Non-fungible tokens (NFTs) – strings of code stored on the blockchain that represent unique ownership of digital art, videos, or even tweets – have also exploded into the mainstream. A digital collage by the United States
Artist Beeple sold for nearly $ 70 million at Christie’s in May, making it one of the three most expensive pieces by a living artist to ever be auctioned.

The dream of going green has remained in the foreground this year. Green bond issuance is slated for another record year, at nearly half a trillion dollars. The “ESG” version of MSCI’s flagship global equity index is up more than 2 percentage points from the standard version, while China’s most environmentally friendly stock index has jumped more 45% even as other sectors collapsed.

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