Global Markets in 2021: Economic growth, prices and risks
By The Forex Review - 28 / January / 22 533
Dominick Bell
For global financial markets, the second year of the COVID-19 pandemic turned out to be almost as dramatic as the first.
The bulls in the stock markets remained at the helm, the rapid rise in energy and food prices sharply accelerated inflation, roiling bond markets, and China's technology and real estate sectors experienced losses of up to $ 1 trillion.
On top of that, Turkey is ending 2021 in currency chaos, bitcoin and cryptocurrencies continue to surprise with dynamics, and small traders have ruffled the nerves of hedge funds. Green energy is becoming mainstream, but the good old oil and gas turned out to be a big winner, rising by more than 40% and 50%.
1. PROMOTIONAL PRICE
The MSCI index for 50 countries added another $10 trillion, or 13%, thanks to signs of recovery from COVID and the continued flow of central bank incentives.
However, there are striking differences.
Wall Street grew by 23%, but only five companies accounted for about 65% of Nasdaq's growth — Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA), according to calculations by Bank of America (NYSE:BAC).
European banks showed the best annual performance in more than a decade, receiving a 33 percent gain, but emerging market stocks lost 7%, led by a 30 percent drop in shares of Chinese technology companies listed in Hong Kong, affected by Beijing's actions.
"We think American stocks are absolutely insane," said Tommy Garvey of GMO, adding that the valuation of stocks in most other countries of the world is also high.
2. SWINGING OIL
Commodity markets experienced an impressive upturn while the world's large resource-intensive economies were trying to return to normal life. The increase in oil and natural gas prices by 40% and 50% was the best in the last five years and led to the fact that prices were much higher than pre-pandemic levels.
The price of copper, a key industrial metal, hit a record high in April and jumped almost 25% for the second year in a row. A similar increase was observed in zinc, and aluminum grew by 40% for the best year since 2009.
The price of gold has fallen, but agricultural markets have flourished: the price of corn has increased by a quarter, sugar - by 20%, and coffee - by 67%.
3. BEARS IN THE CHINA SHOP
The harsh measures taken by the Chinese authorities against large Internet companies, combined with the crisis in the real estate sector, have led to the fact that the country's markets have lost more than a trillion dollars this year.
Shares of Alibaba (NYSE:BABA), the Chinese equivalent of Amazon (NASDAQ:AMZN), fell by almost 50%. The index of the "golden dragon" - Chinese stocks listed in the United States - fell by 40%, and the default of the developer Evergrande (HK:3333) became the largest for the benchmark.
This hit the Chinese market of high-yield, or "junk", bonds hard, which lost about 30%. Bonds of real estate companies account for 67% of the main Chinese index of high-yield bonds ICE..
4. BONDS ARE NOT THE TIME TO BUY
High inflation and the beginning of the curtailment of Central Bank incentives have made this year difficult for bond markets.
US Treasury bonds — the global benchmark for investors in government debt - have lost 2% since the beginning of the year. This will be their first negative result for the year since 2013. The 8% fall in the euro this year means that German bonds have lost more than 9% in dollar terms.
On the positive side, the riskiest group of corporate junk bonds - with a rating of "CCC" or lower - added about 10% in both the US and Europe..
5. CRAZY MEMES
Private investors in the past year actively participated in trading on Wall Street, which led to sharp jumps and huge volumes of trading in so-called meme stocks.
GameStop (NYSE:GME) shares rose by almost 2,500% in January, but, having regained a significant part of what was achieved, they will end the year with a 730% increase. The securities of AMC Entertainment (NYSE:AMC), another favorite of retail investors, are still in the black by about 1.350% at the end of the year, although in early June their rise reached 3.200%.
Tesla, the queen of the electric car sector, has recovered from the recession at the beginning of the year. But other stocks or funds related to innovation — such as the ARK Innovation (NYSE:ARKK) Fund and some securities in the field of solar energy, shares of BioTech and SPAC companies - fell by 20-30%.
6. THE LIRA SWOOPS
Sharp drops in the Turkish lira are not uncommon, but the crisis of 2021 turned out to be impressive even for it.
The situation began to deteriorate in March, when the self-proclaimed enemy of interest rates, President Tayyip Erdogan, replaced the next head of the central bank. Things got even worse when the new head of the regulator started cutting rates in September.
There was a decent rebound in December, as the government presented another unconventional economic plan, but the losses of the lira since the beginning of the year still exceed 40%, the public debt market has also been seriously affected.
7. ON THE CREST OF INFLATION
The surge in inflation has become one of the main reasons for investors' concern in 2021. The pandemic has disrupted the global supply chain and made it difficult to meet demand for everything from microchips to potato chips.
Inflation in the US accelerated to the highest since the 1980s, and the Federal Reserve announced in December that it would end its asset purchase program earlier than expected, and the Bank of England became the first central bank of the "Big Seven" to raise interest rates since the beginning of the pandemic.
Other leading central banks are expected to follow suit next year, although some major emerging markets are already well advanced in this process.
8. EMERGING MARKETS
Investors had high hopes for emerging markets at the beginning of the year, but it turned out to be almost the opposite. Due to China's difficulties and the ongoing COVID crisis, emerging market stocks lost 7%, which looks even worse when compared with a 13% rise in the global index and a 23% jump on Wall Street.
Government bonds of EM countries in the national currency also found themselves in a difficult situation, losing 9.7%. Dollar-denominated bonds performed slightly better, especially in oil-producing countries, but J.P. Morgan's EM currency index, which does not take into account the Chinese yuan, lost almost 10%.
9. BITCOIN BOOM
Bitcoin for almost $70,000; "memcoins" worth billions of dollars; a high-profile listing on Wall Street and large-scale tough measures in China: The year 2021 was the most turbulent in the history of cryptocurrencies, even by the standards of this freedom-loving sector.
Bitcoin's jump of almost 70% may seem minuscule compared to the 300% growth in 2020, but this happened despite the tough measures in China in May, as a result of which bitcoin fell in price by almost half.
Dodgecoin, a digital token launched in 2013 as a comic offshoot of bitcoin, has soared by more than 12,000% since the beginning of the year and reached a historic high in May, but by mid-December it had fallen by almost 80%.
10. GREEN DREAM
The green color remained in fashion last year. The issue of "green" bonds again became a record at the end of the year, amounting to almost half a trillion dollars. The ESG version of MSCI's flagship global equity index rose more than 2% stronger than the standard version, and the index of the most environmentally friendly Chinese stocks added more than 40% even against the background of falling other sectors.
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