By Marc Jones and Saqib Iqbal Ahmed
LONDON/NEW YORK- For global financial markets, the second year of the COVID pandemic has been nearly as dramatic as the first.
The stocks bulls have stayed firmly in charge, surging energy and food prices have turbo-charged inflation, rattling the bond markets, while China has seen $1 trillion wipeouts in its heavyweight tech and property sectors.
On top of all that, Turkey exits 2021 in currency chaos, bitcoin and cryptokind have crushed it, small-time traders gave some hedge funds a drubbing and though green has gone mainstream, dirty old oil and gas have been the big winners, up more than 40 percent and 50 percent.
MSCI’s 50-country world index has piled on another $10 trillion, or 13 percent, thanks to COVID recovery signs and the torrent of central bank stimulus that has continued to flow.
There have been some stark differences though. Wall Street is up 23 percent but roughly 65 percent of the Nasdaq’s gains (3,780 stocks) are thanks to just five stocks – Microsoft, Google, Apple, Nvidia and Tesla, according to Bank of America number crunchers.
European banks have had their best year in over a decade with a 33 percent gain, but emerging market equities have lost a woeful 7 percent, led by a 30 percent plunge in Hong Kong-listed Chinese tech hit by Beijing’s moves to limit their influence.
“We think US equities are absolutely bonkers,” said Tommy Garvey, a member of asset manager GMO’s asset allocation team, adding that valuations in most other parts of the world were also expensive.
Commodity markets have had a blinder as the world’s big resource-hungry economies have tried to get back to some kind of normal. Respective 40 percent and 50 percent gains for oil and natural gas are their best in five years and left prices well above pre-pandemic levels.
Key industrial metal cooper hit a record high back in April and has jumped nearly 25 percent for the second year in row. Zinc has seen a similar gain, while aluminum has made 40 percent in its best year since 2009.
Precious metal gold has dipped but the agri-markets have blossomed with corn up by a quarter, sugar up a tasty 20 percent and coffee a perky 67 percent.
China’s crackdown on its big online firms, combined with a property sector crisis, have wiped over a trillion dollars off its markets this year.
Alibaba, China’s equivalent Amazon, has tumbled nearly 50 percent. The golden dragon index of US-listed Chinese stocks is down 40 percent, while homebuilder Evergrande has just become its biggest-ever default.
That has sent a wrecking ball crashing into the Chinese high-yield or ‘junk’ bond market, which has lost roughly 30 percent. Property firms’ bonds account for 67 percent of the main ICE Chinese high-yield index.
“If home sales keep dropping at the rate they are at the moment you could easily shave another 1 percent off of (Chinese) GDP,” cautioned AXA Investment Managers’ Head of Active Emerging Markets Fixed Income Sailesh Lad.
Booming inflation and big central banks starting to turn off the money taps has made it a difficult year for bond markets.
US Treasuries – the global benchmark for government debt investors – are set to deliver a 2 percent loss, their first red result since 2013, while the euro’s 8 percent drop this year means German Bunds have lost over 9 percent in dollar terms.
On the positive side, the most risky band of corporate ‘junk’ bonds – those rated CCC and below – have made around 10 percent in both the US and Europe.
Inflation-linked bonds have also done well, unsurprisingly, with US TIPs returning 5 percent, euro-denominated equivalents earning 7 percent and British linkers making 6 percent.
Retail traders took to Wall Street in a big way this year, driving eye-popping moves and huge trading volume in the so-called ‘meme’ stocks.
Shares of GameStop rose nearly 2,500 percent in January, but having given back a lot of the gains, it will end the year up 730 percent. AMC Entertainment, another meme favorite, is still up about 1,350 percent for the year, although it was up as much as 3,200 percent in early June.
Tesla, doyen of the electric car sector, recovered from a skid early in the year. 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 percent to 30 percent.
Turkish lira slumps are hardly rare these days, but this year’s blow-up has been spectacular even by its standards.
Things started to turn ugly in March when self-declared enemy of interest rates, President Tayyip Erdogan, replaced another central bank governor. But it has gotten even worse since his new head of the bank started slashing rates in September.
There has been a decent bounce this week as the government has sketched out another unorthodox plan to limit the pain, but the lira is still down over 40 percent for the year and the government’s bonds have been hammered.
A surge in inflation became a major concern for investors in 2021 as the pandemic disrupted the global supply chain and made it difficult to meet demand for everything from microchips to potato chips. – Reuters
