Bulls on parade in 2021

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TEAM Asset Management review global markets in 2021

THE bull run continued for global stocks in 2021 as stellar corporate earnings offset concerns over the mutating coronavirus, soaring inflation and tighter monetary policy.

US stock markets led the way and both the blue-chip S&P 500 (+26.9%) and technology-focused Nasdaq (+21.4%) indices ended the year at close to all-time highs. The FTSE 100 (+14.2%) and Euro Stoxx 50 (+21.1%) also posted strong gains.

Behind the headline numbers, many interesting stories played out in equity markets in 2021. One of these was the rise of the ‘meme stock’. Retail investors, encouraged by social media and message boards, teamed up to take on hedge funds and bought some of the most shorted stocks, including GameStop, the bricks-and-mortar second-hand video-games retailer.

The collective action led to short squeezes, forcing sellers to buy back stocks at inflated prices to close out positions. GameStop, which started the year at just under $19, climbed to an intraday high of $483 on 28 January.

Another was the underperformance of China (-5.2%) versus other major markets as government interventions and stricter regulations on its education, property and technology sectors undermined investor sentiment. High-profile tech stocks such as Alibaba and Tencent fell 49% and 19% respectively during the year and heavily indebted property developer Evergrande dived 89%.

Bond markets suffered their worst year in more than two decades as inflation surged against a backdrop of disrupted supply chains, massive fiscal and monetary stimulus and economies re-opening from Covid-19 lockdowns. UK gilts declined 5.2% and sterling corporate bonds fell 3.2%.

Central banks insisted higher inflation was a ‘transitory’ phenomenon but, as it ran hotter throughout the year, officials eventually acknowledged that upward price pressures were more entrenched.

Annual consumer price inflation in the UK climbed above 5% in November for the first time since the mid-1990s and is expected to reach 6% early next year. The Bank of England raised interest rates to 0.25% in December and is expected to hike again in February.

The US Federal Reserve has also adopted a more hawkish stance and will wind up its bond-buying programme in March, paving the way for interest-rate hikes later in the year.

Energy prices soared in 2021 and Brent Crude rose 53% to $79 a barrel. Recovering demand for oil and gas as economies re-opened coincided with disrupted supply due to weather events, including the February freeze and Hurricane Ida, escalating tensions between Russia and the West and transportation bottlenecks.

Last year may be remembered as the year in which cryptocurrencies went mainstream in the investment world. Bitcoin hit a record high of $68,000 in November shortly after the SEC approved the first US-listed Bitcoin-linked ETF. A number of hedge funds, investment banks and asset managers have invested substantial amounts over the year to recruit specialist cryptocurrency expertise and trading capabilities.

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