The 5 words that marked the stock market in 2021

It is not easy to make predictions about the future, especially when it comes to stock markets. Last year, at such a time, the average analyst would not have predicted that the index with the best performance for 2021 would be Mongolia, or that a movie chain could offer returns of almost 1,200%, according to Bloomberg.

And while most analysts had predicted a recovery after the fall caused by the pandemic, few had predicted the intensity of the rally that pushed European and US stocks to record highs, or the most recent drop following the emergence of the Omicron mutation. Even fewer had predicted a recession in China or a liquidity crisis affecting the country’s real estate market.

2021 was another bad year to invest in Turkish stocks, with the country’s idiosyncratic approach to inflation sending the pound to its all-time low. On the other hand, it was one of the best years for those who invested in South Korean television and Bucket Studio, which owns a stake in an agency representing Squid Game star Lee Jung Jae.

Nevertheless, there were some general issues that affected the markets this year. Even if the predictions turn out to be wrong, the specific words are likely to concern us in 2022 as well.

Covid-19

Developments related to the pandemic have been the main driver of the market for almost two years, first causing a collapse in 2020 and then a steady rally thanks to vaccination programs that allowed the economic restart. Now, concerns about the Omicron mutation are bringing new “ripples” to global stock indices.

Most strategic analysts expect the virus to become a minor issue next year, as the advent of anti-viral pills by Pfizer and Merck adds two more weapons to humanity’s arsenal against the deadly infection. This majority view has not changed despite warnings that the new strain may not respond to existing treatments.

However, if there is one thing the pandemic has taught us, it is that investment strategy and epidemiology are two different things.

And even if the virus becomes an endemic “nuisance,” the restrictions on those who are infected “become a more persistent brake on growth,” said Romain Boscher, head of equity strategy at Fidelity International.

Inflation

In terms of price increases, the surge in corporate profits has shown that companies can pass on higher costs to a consumer who remains willing to spend.

If inflationary pressures subside in the coming months, we should not expect a relief rally, as this has already been discounted by equities.

If price pressures persist or even intensify, things could get tough. Shares hedge well against inflation only to a certain extent, which Oddo BHF, WallachBeth Capital and Lombard Odier place at 3% to 5%.

A continued rise in prices of more than 4% will erode profits and hurt equities, according to Florian Ielpo, head of Lombard Odier’s macroeconomic and multi-asset division.

High inflation would also force central banks to tighten their policies, thus increasing borrowing costs for heavily indebted countries such as Italy, and draining market liquidity. US Federal Reserve Chairman Jerome Powell has warned of a possible decline in asset purchases.

Morgan Stanley’s Graham Secker says the impact of the European Central Bank’s potential tapering on regional European debt is among the biggest downside risks next year, with strategic analysts at JPMorgan Chase & Co. They singled out a “hawkish” turn of the central banks (which includes an increase in interest rates) as the main disadvantage in their upward prospects.

Carbonation

One reason why inflation may remain structurally higher is the transition to climate neutrality, a goal for which the world’s largest economies – from the US to India – have committed collectively this year.

Higher carbon prices and environmental taxes are increasing production costs for industries, while under-investment in fossil fuels has contributed to a surge in energy costs that threatens to slow growth and disrupt production.

On the other hand, asset managers from BlackRock Inc. to Nuveen say the carbon offensive creates unprecedented investment opportunities.

No need to look at electric cars for example: The share of Tesla Inc. has risen more than 1,000% since the beginning of last year, while the market value of Rivian Automotive Inc. jumped to just over $ 100 billion shortly after its stock debut last month, even though its sales are virtually non-existent.

Shares that are positively exposed to carbon offsets benefit in the long run.

With the Greens now in government in Europe’s largest economy, coal-fired shares could boost after the fall this year for companies such as Siemens Gamesa Renewable Energy SA and Vestas Wind Systems A / S.

Metaverse

The rebranding of Facebook to Meta and the beginning of “Metaverse” announced by Mark Zuckerberg, attracted the spotlight and more.

Chip maker Nvidia and video game company Roblox Corp. are just two of the shares that rose briefly after the renaming of the company co-founded by Mark Zuckerberg to Meta.

The metaverse, a digital world where users can socialize, play games and do business, is a multi-trillion dollar opportunity, according to Epic Games CEO Tim Sweeney.

Already, a digital model of a Gucci bag, which can only be used in the universe of a gaming platform, can cost more than the physical version.

This is because people in the developed world now spend more time online than interacting in the wild, according to Morgan Stanley.

While this movement has accelerated with orders to stay home during the pandemic, it is projected to continue in the coming years and may really take off when Apple Inc. join the “party”.

China

Beijing introduced extensive measures this year to curb the profits of tech giants and education companies, and imposed restrictions on lending to real estate developers to reduce its dependence on the sector.

At the same time, the spike in factory prices has made it difficult for companies to maintain profit margins, while the lack of significant easing measures by the country’s central bank in recent months has burdened economic growth.

Offshore Chinese stocks in Hong Kong are among the worst performers in the world this year, while the Nasdaq Golden Dragon China index has fallen more than 50% since the peak in February. The MSCI China Index is close to its lowest level against global equities since 2006.

The MSCI China Index trades close to its lowest level against its global bonds. Nevertheless, many global institutional investors are expressing interest in Chinese stocks.

BlackRock sees the culmination of the settlement over and expects more measures to benefit the economy in the new year, while BNP Paribas predicts that Beijing will adjust its policies to real estate builders and support the private sector. at a major financial meeting this month.

“We believe this is a good time to take a stand,” BlackRock’s portfolio manager Lucy Liu said in a statement on November 23.

Goldman Sachs is optimistic about the investment opportunities associated with President Xi Jinping’s “common prosperity” campaign, such as renewable energy. And UBS Group AG says stricter regulations have been valued, while corporate profits and valuations are set to improve.

In 2022

Monitoring these issues does not necessarily guarantee significant returns for investors and unpredictable events lurk everywhere: from the US midterm elections to the French presidential election and the tensions in Taiwan to a comprehensive crisis in the Turkish economy after the pound fell. .

Supply chain congestion will continue to be closely monitored, and global warming is another wildlife that traders may need to consider.

It is therefore not surprising that there is no consensus among the world’s most prominent strategists on the direction of the stock markets.

Read also: