Recovery, deflation and wrecking ball Reuters

© Reuters. File photo: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, USA on November 29, 2021. REUTERS/Brendan McDermid/File Photo

Authors: Marc Jones and Saqib Iqbal Ahmed

London/New York (Reuters)-For global financial markets, the second year of the COVID-19 pandemic is almost as intense as the first year.

The stock market bulls have a firm grip on the situation, soaring energy and food prices have fueled inflation and made the bond market turbulent, while China’s heavyweight technology and real estate industries have lost $1 trillion.

Most importantly, Turkey withdrew from the currency chaos in 2021, Bitcoin and other cryptocurrencies have crushed it, small traders gave some hedge funds a fiasco, although green has become mainstream, dirty oil and gas Has always been a big winner, with gains of approximately 50% and 48% respectively.

1/stock until you give up

Thanks to the signs of recovery from COVID and the continuous torrent of stimulus from central banks, MSCI’s 50-country World Index increased by more than US$10 trillion, or 20%. The index rose 27%, while the Nasdaq index, which is dominated by technology stocks, rose 22%.

European banks have had their best year in more than a decade, rising by 34%, but emerging market stocks have fallen by 5%. This is due to Beijing’s measures to limit its influence that caused Chinese technology stocks listed in Hong Kong to plummet by 30%.

“We think the U.S. stock market is absolutely crazy,” said Tommy Garvey, a member of the asset management company GMO’s asset allocation team, adding that valuations in most other parts of the world are also expensive.

2/The oil took away the spoils

As the world’s resource-poor large economies try to return to a certain normal state, the commodity market has become blind. Oil rose by 50% and 48% respectively, the best level in five years, making prices much higher than pre-pandemic levels.

Key industrial metals hit a record high in April and rose nearly 25% for the second year in a row. Zinc has a similar increase, while aluminum has its best year since 2009, with an increase of about 40%.

The precious metal gold fell, but the agricultural product market was booming, with corn up nearly 25%, sugar up 22%, and coffee up 70%.

3/Bear in China shop

China’s crackdown on its large online companies, coupled with the real estate industry crisis, has evaporated more than $1 trillion from its market this year.

Alibaba (New York Stock Exchange stock code:), which is equivalent to China’s Amazon (NASDAQ stock code:), has fallen nearly 50%. The Golden Dragon Index, which lists Chinese stocks in the United States, fell 42%, and residential builder Evergrande has just become its biggest default in history.

This has dealt a devastating blow to China’s high-yield or “junk” bond market, which has fallen by about 30%. Real estate corporate bonds account for 67% of the main ICE (NYSE:) China High Yield Index.

“If home sales continue to decline at the current rate, you can easily cut (China’s) GDP by another 1%,” warned Sailesh Lad, head of the active emerging markets fixed income department of AXA Investment Management.

4/bonds-no time to buy

High inflation and large central banks have begun to shut down funding sources, making the bond market difficult this year.

U.S. Treasury bonds, the global benchmark for government bond investors, will fall by about 3%, the first loss since 2013, and as of December 22, German government bonds have fallen by about 9%.

On the positive side, the most risky corporate “junk” bonds—those rated CCC and below—have yields around 10% in the United States and Europe.

Inflation-linked bonds also performed well. Unsurprisingly, the U.S. TIP returned 6%, the euro-denominated equivalent returned 6.3%, and the UK-linked bond returned 3.7%.

5/memetic madness

Retail traders aggressively marched into Wall Street this year, driving the astonishing trend and huge trading volume of so-called “memetic” stocks.

The share price of GameStop (NYSE:) rose nearly 2,500% in January, but will rise 700% by the end of the year. AMC Entertainment (NYSE:) is another most popular meme, which is still up about 1,200% this year, even though it was up 3,200% in early June.

Tesla (NASDAQ:), the leader of the electric vehicle industry, has recovered from a slump at the beginning of this year. But other innovation-related funds or stocks-such as the Ark Innovation Fund and some solar stocks, biotech stocks and special purpose acquisition companies or SPACs-fell 20% to 30%.

6/Turkish lira to take a bath

The Turkish lira’s plunge is not uncommon today, but even by its standards, this year’s plunge is spectacular.

In March, when President Tayyip Erdogan, a self-proclaimed enemy of interest rates, took over from another central bank governor, things started to get worse. But since the new governor of his bank began to cut interest rates sharply in September, the situation has gotten worse.

Despite a slight rebound after the government formulated an unorthodox plan to limit pain, the lira still fell by more than 40% this year, and government bonds have been hit hard.

7/Inflation Palpitations

As the pandemic disrupts the global supply chain, it is difficult to meet the demand for everything from microchips to potato chips, and soaring inflation has become a major concern for investors in 2021.

As inflation in the United States rose to its highest level since the 1980s, the Federal Reserve announced this month that it would end bond purchases during the pandemic earlier than previously expected, and the Bank of England became the first G7 central bank to raise interest rates since the outbreak of the COVID-19.

Other major central banks are expected to follow suit next year, but some major emerging markets have already made good progress in the process.

8/emerging markets

Investors have high hopes for entering this year’s emerging markets, but many are disappointed.

The struggle in China and the persistence of COVID have caused emerging market stocks to fall by 5%, which looks worse than the 20% rise in the world index and the 27% rise on Wall Street.

Local currency emerging market government bonds also underperformed, falling 9.7%. U.S. dollar-denominated bonds have performed better, especially in oil-producing countries, but JPMorgan Chase’s Emerging Market Currency Index (excluding) has fallen by nearly 10%.

“China is the most important story this year,” said Jeff Grylls, head of emerging market debt at Aegon (NYSE:) Asset Management, adding that next year is likely to focus on the speed and magnitude of interest rate rises and the continued growth. sex.

9/Encryption to smash it

Nearly $70,000; “Memecoin” worth billions of dollars; Blockbuster listing on Wall Street and China’s full blow: 2021 is the craziest year for cryptocurrencies, even according to the industry’s freewheeling standards .

Compared with last year’s 300% increase, Bitcoin’s nearly 60% increase may seem trivial, but this happened despite China’s crackdown in May to almost halve its price.

It is a digital token that was launched as a joke of Bitcoin derivatives in 2013, which surged more than 12,000% from the beginning of this year to a record high in May-and then fell by about 80% in mid-December.

Non-fungible tokens (NFTs)-strings of codes stored on the blockchain that represent unique ownership of digital art, videos and even tweets-are also exploding in the mainstream. A digital collage by American artist Beeple was sold at Christie’s auction in May for nearly $70 million, making it one of the three most expensive works sold by living artists at auction.

10/Green Dream

This year, green dreams are still the top priority. The issuance of green bonds will hit a record high, approaching US$50 billion. The “ESG” version of MSCI’s flagship world stock index has risen by more than 2 percentage points over the standard version, while China’s most environmentally friendly stock index has soared by more than 45% despite the decline in other sectors.

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