Market Insights – January 10, 2022

Each week, our Investment team shares its market views with you.

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After correcting in 2021, Asia’s tech stocks have remained volatile so far in 2022, hit by fears of rate hikes in the US. The Hang Seng TECH Index lost more than 6% in the first three days of trading, then quickly rallied. Its year-to-date decline now stands at less than 1%. 

Last year was a stellar one for cryptoassets: Bitcoin gained more than 60% and Ethereum soared by 399%. However, we’ve seen some profit-taking from November onwards, and that has continued into the new year – Bitcoin, for instance, is down around 35% from its all-time high. 

December job creation figures fell short of economists’ expectations in the States, but unemployment continued to decline. It fell below the 4% mark for the first time since the start of the pandemic, meaning that the US economy is now back at full employment. This should reassure the Fed in its decision to normalise monetary policy in 2022, with a first rate hike expected before the spring.

Out with a bumper year, best wishes for 2022 !

In terms of economic activity, 2021 was one of the best years since the early 1970s. And that’s despite the COVID-19 pandemic, which continued to weigh on output around the world. After a difficult year in 2020, when the global economy contracted by around 3%, growth picked up sharply in 2021 and should come in at around 6%. This spectacular recovery happened in most major economies, including the US, China and the eurozone, which all saw their GDP increase by more than 5%. 

This robust global trend prompted some sharp movements on the financial markets. The bond market was the biggest loser of the year, while all other major asset classes put in very solid performances. The return to growth came hand in hand with a sharp rise in inflation, so bond investors had to price in the possibility of tighter monetary policies and higher interest rates. Bonds lost ground across the board, with the exception of a handful of market segments such as US high yields. 

Equities, however, posted excellent returns overall, although there were significant disparities across regions. North American and European markets performed very well, in some cases gaining more than 20%, while many emerging markets ended the year on a disappointing note or even in negative territory. Last year was also marked by a sharp rotation in terms of sectors and investment styles.

Commodities also fared excellently overall, rising by close to 40% on the back of the sharp rise in energy and industrial metal prices. Precious metals, however, were hit by investors’ renewed optimism.

Alternative investments (e.g. hedge funds) kept up the dynamic trend started in 2020, and property funds – especially those in Switzerland – also had a good year. When it comes to currencies, the US dollar came out on top, ending the year up against most major currencies.

All in all, we made the right asset allocation decisions given the circumstances, particularly when we chose to sharply underweight bonds and to overweight equities, alternative funds and, albeit to a lesser extent, commodities.

2021 – a vintage year for European equities!

European stock markets put in a very solid performance in 2021. In local currency, they gained more than 20% over the year – hot on the heels of the US market, which once again topped the leader board. They also significantly outperformed other markets, especially those in emerging market countries. 

Bank and tech stocks fared the best, a rare combination of top performers for European stock markets. Tech stocks continued their uptrend, while banks bounced back after a long rocky period. They had been hit hard by the financial crisis and for a long time were considered the weak link in eurozone markets; this was reflected in their valuations, which hit rock bottom.

It’s true that European banks had a long recovery ahead of them, but in response to regulations brought in by the European Central Bank, they have recapitalised and should continue to do well thanks to the economic recovery and rising interest rates. 

Utilities and travel and leisure stocks struggled the most last year. The travel and leisure sector was hit hard by the successive waves of COVID-19 infections, which prevented tourism from making a comeback. We think that the economic reopening is still a valid investment theme, although the timeline has changed. 

This year started on a more volatile note. European stock markets will struggle to match their 2021 performance, but they should continue to catch up – they are attractively valued in relative terms and are more cyclical and value-oriented than markets in other regions.


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