How 2021 was a promising year for global equities

The year 2021 ended up being a very good one for global equities.

With the ongoing impact of the Covid pandemic around the world, the year started with high volatility and a Reddit-fuelled campaign, which saw retail activity spike in several of the heavily shorted stocks, such as GameStop and AMC.

But as the year progressed, the economy roared thanks to the rollout of vaccinations. Markets were up around 20 per cent, and the year’s solid performance was driven by a strong rebound in earnings – up 104 per cent for the first nine months of 2021  compared to the same period in 2020.

Several trends emerged over last year. Global supply chains were stretched and unable to deliver against an extraordinary demand from developed economies, and the consequences were rising costs on goods and supply constraints on key industrial components such as semiconductors, which had a negative impact on car production.

As a result of these supply constraints logistics, the commodity sector, and semiconductor stocks did very well in 2021, outperforming global equities. Owing to out-of-supply constraints and high demand, inflation emerged as something more broad-based and less transitory contrary to what central banks kept insisting on. The US Federal Open Market Committee finally met in December last year to lay the grounds for a higher Fed Funds Rate in 2022, with inflation becoming a key economic concern and risk to growth.

The rising inflation outlook and expectations that interest rates might rise caused many investors to evaluate their exposure to growth stocks, which are more sensitive to interest rates. As a result, 2020’s winners such as green transformation, e-commerce and bubble stocks were among the worst performers last year.

Additionally, 2021 will also be remembered as the year when China likely faced its biggest challenges since the global financial crisis in 2008, with a brewing housing crisis, technology crackdown to drive more ‘common prosperity’, and weakening domestic demand – all of which have made Chinese equities underperform compared to the rest of the world.

The flipside of China’s challenges has been a strong performance from India, which has emerged as one of the big winners in 2021, with a strong equity market and earnings hitting a new record.

Last year, the most traded stocks among our UAE-based investors reflected all these trends, with American electrical vehicle giant Tesla leading the way followed by GameStop, Apple, Amazon and Nio, as investors continued to follow global trends driven by technology.

A similar trend reflected across our global investors: Tesla was also the most popular stock ahead of Nio, ASML Holding, Apple, and ASM International.

The biggest question for investors this year will be how much interest rates will go up, as it will dictate many of the trends we’ll see play out in the months to come.

Peter Garnry is the head of equity strategy at Saxo Bank 

Taken from GB Invest February 2022 issue