Global Markets in 2021: Recoveries, reflation and wrecking balls

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LONDON/NEW YORK, Dec 31 (Reuters) - For global financial markets, the second year of the COVID pandemic has been nearly as dramatic as the first.

The stocks bulls have stayed firmly in charge, surging energy and food prices have turbo-charged inflation, rattling the bond markets, while China has seen $1 trillion wipeouts in its heavyweight tech and property sectors.

On top of all that, Turkey exits 2021 in currency chaos, bitcoin and other cryptocurrencies have crushed it, small-time traders gave some hedge funds a drubbing and though green has gone mainstream, dirty oil and gas have been the big winners, up about 50% and 48%, respectively.

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1/STOCKS TILL YOU DROP

MSCI's 50-country world index has added more than $10 trillion, or 20%, thanks to COVID recovery signs and the torrent of central bank stimulus that has continued to flow. The S&P 500 has gained 27%, while the tech-heavy Nasdaq is up 22%.

European banks (.SX7P) have had their best year in over a decade with a 34% gain, but emerging market equities have lost a woeful 5% (.MSCIEF), led by a 30% plunge in Hong Kong-listed Chinese tech hit by Beijing's moves to limit their influence.

"We think U.S. equities are absolutely bonkers," said Tommy Garvey, a member of asset manager GMO's asset allocation team, adding that valuations in most other parts of the world were also expensive.

World stocks have seen $10 trillion surge in value in 2021

2/OIL TAKES THE SPOILS

Commodity markets have had a blinder as the world's big resource-hungry economies have tried to get back to some kind of normal. Respective 50% and 48% gains for oil and natural gas are their best in five years and left prices well above pre-pandemic levels.

Key industrial metal copper hit a record high back in April and has jumped nearly 25% for the second year in row. Zinc has seen a similar gain , while aluminium has made about 40% in its best year since 2009.

Precious metal gold has dipped but the agri-markets have blossomed with corn up by nearly 25%, sugar up 22% and coffee 70%.

Oil, gold, bitcoin, coffee and stocks

3/BEARS IN THE CHINA SHOP

China's crackdown on its big online firms, combined with a property sector crisis, have wiped over a trillion dollars off its markets this year.

Alibaba (9988.HK), China's equivalent to Amazon, has tumbled nearly 50%. The golden dragon index of U.S.-listed Chinese stocks is down 42% (.HXC), while homebuilder Evergrande (3333.HK) has just become its biggest-ever default.

That has sent a wrecking ball crashing into the Chinese high-yield or 'junk' bond market, which has lost roughly 30%. Property firms' bonds account for 67% of the main ICE Chinese high-yield index. .

"If home sales keep dropping at the rate they are at the moment you could easily shave another 1% off of (Chinese) GDP," cautioned AXA Investment Managers' Head of Active Emerging Markets Fixed Income Sailesh Lad.

Chinese stocks battered by Beijing clampdown

4/BONDS - NO TIME TO BUY

Booming inflation and big central banks starting to turn off the money taps has made it a difficult year for bond markets.

U.S. Treasuries - the global benchmark for government debt investors - are set to deliver a loss of around 3%, their first red result since 2013, while German Bunds were down around 9% as of Dec. 22.

On the positive side, the most risky band of corporate 'junk' bonds - those rated CCC and below - have made around 10% in both the U.S. and Europe. .

Inflation-linked bonds have also done well, unsurprisingly, with U.S. TIPs returning 6%, euro-denominated equivalents earning 6.3% and British linkers making 3.7%. .

Negative returns for most major bond markets in 2021

5/MEME MADNESS

Retail traders took to Wall Street in a big way this year, driving eye-popping moves and huge trading volume in the so-called 'meme' stocks.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 29, 2021. REUTERS/Brendan McDermid/File Photo

Shares of GameStop (GME.N) rose nearly 2,500% in January, but will end the year up 700%. AMC Entertainment (AMC.N), another meme favourite, is still up about 1,200% for the year, although it was up as much as 3,200% in early June.

Tesla (TSLA.O), doyen of the electric car sector, recovered from a skid early in the year. But other funds or stocks linked to innovation – such as the ARK Innovation Fund and some solar energy stocks, BioTech shares and special purpose acquisition companies or SPACs – are down 20% to 30%.

Meme stocks have had a rollercoaster year

6/TURKISH LIRA TAKES A BATH

Turkish lira slumps are hardly rare these days, but this year's blow-up has been spectacular even by its standards.

Things started to turn ugly in March when self-declared enemy of interest rates, President Tayyip Erdogan, replaced another central bank governor. But it has gotten worse since his new head of the bank started slashing rates in September.

Despite a modest bounce after the government sketched out an unorthodox plan to limit the pain, the lira is still down over 40% for the year and the government's bonds have been hammered.

Turkey's turbulent 2021

7/INFLATION PALPITATIONS

A surge in inflation became a major concern for investors in 2021 as the pandemic disrupted the global supply chain and made it difficult to meet demand for everything from microchips to potato chips.

With U.S. inflation ramping to its highest since the 1980s, the Federal Reserve announced this month it will end its pandemic-era bond purchases sooner than previously expected and the Bank of England became the first G7 central bank to hike interest rates since the COVID outbreak.

Other major central banks are expected to follow next year, but some of the major emerging markets are already well advanced in the process.

Global inflation surged in 2021

8/SUBMERGING MARKETS

Investors had high hopes for emerging markets coming into the year, but many have been disappointed.

China's struggles and the persistence of COVID have seen EM stocks lose 5%, which looks even worse when compared to a 20% rise in the world index and the 27% leap on Wall Street.

Local currency EM government bonds have fared badly too, losing 9.7% .

"China was the huge story of the year," said Jeff Grills, Aegon Asset Management's head of emerging markets debt, adding next year was likely to be all about how quickly and far interest rates rise and how growth holds up.

Currencies against the US dollar, year-to-date change

9/CRYPTO CRUSHES IT

Bitcoin at nearly $70,000; "memecoins" worth billions of dollars; a blockbuster Wall Street listing and a sweeping Chinese crackdown: 2021 was the wildest yet for cryptocurrencies, even by the sector's freewheeling standards.

Bitcoin's near 60% jump may look paltry compared to last year's 300% rise, but that has come despite a Chinese crackdown in May which saw it nearly halve in price.

Dogecoin, a digital token launched in 2013 as a joke bitcoin spin-off, soared over 12,000% from the start of the year to an all-time high in May - before slumping about 80% by mid-December.

Non-fungible tokens (NFTs) - strings of code stored on the blockchain that represent unique ownership of digital art, videos or even tweets - have also exploded in the mainstream. A digital collage by U.S. artist Beeple sold for nearly $70 million at Christie's in May, making it one of the top three most expensive pieces by a living artist ever sold at auction. read more

Reuters Graphics

10/GREEN DREAM

The dream to go green has remained front and centre this year. Green bond issuance is set for yet another record year, at nearly half a trillion dollars. The "ESG" version of MSCI's flagship world stocks index (.MIWD00002PUS) is up more than 2 percentage points than the standard version (.MIWD00000PUS) while China's most environmentally friendly stocks index has surged more than 45% even as other sectors there have crumpled. (.CSIEPII)

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Additional reporting by Yoruk Bahceli in Amsterdam, Noel Randewich in San Francisco and Tom Wilson and Elizabeth Howcroft in London; Editing by Dan Grebler

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