December global commentary: Global markets bounce back

Equity markets finished the year strongly, bouncing back from a weak November as it became apparent that the latest COVID-19 variant was significantly less deadly than previous strains. Developed markets (DMs) rallied 4.3% MoM to end the year 22% higher. Global value stocks (as classified by MSCI) ended the year strongly (+7% MoM), doing just enough for the MSCI Global Value Index to outperform the MSCI Global Growth Index in 2021 for only the third time in the past fifteen calendar years. US consumer staples, healthcare and utility shares were amongst the best performing in December (+10.3%, +9.3% and +9.6% MoM, respectively), although all three sectors remained amongst the worst-performing for 2021.

Emerging market (EM) equities also eked out gains in December (MSCI EM +1.8% MoM) although this was not enough to push them into positive territory for 2021 (MSCI EM -2.5% YoY). China and Russia were again the largest drag on performance, the latter still caught up in geopolitical tensions related to the build-up of troops on its border with Ukraine. Chinese companies, particularly those with primary listings outside mainland China, were comfortably the worst performers for 2021. Hong Kong-listed Chinese counters (represented by the Hang Seng China Enterprises Index) were down 1.6% MoM to end the year 22% lower, while US-listed Chinese companies (represented by the Nasdaq Golden Dragon Index) were down 13.2% MoM to leave them 43% down for 2021. Chinese ride-hailing company, Didi, catalysed the initial leg down for US-listed Chinese companies as it sought to delist from the US just months after its IPO. This, as Chinese regulators sought to impose more restrictions on foreign listings and geopolitical tensions between China and the US increased on media reports that the US was considering imposing tougher sanctions on some of China’s largest chipmakers.

US 10-year government bond yields drifted marginally higher in December, ending the year at 1.5%, up from 0.9% at the beginning of 2021, as December’s US Federal Reserve (Fed) meeting brought the announcement that the Fed would accelerate the pace of quantitative easing (QE), tapering with the aim of winding down balance sheet expansion by the end of 1Q22 and buying itself the option to start hiking rates in 2Q22 as US inflation reached a 40-year high (6.8% YoY). Across the Atlantic, the European Central Bank (ECB) announced that it would start winding down its QE purchases in 1Q22.

As anxiety around the latest COVID-19 variant receded, along with reduced fears of higher movement- and travel restrictions, oil bounced back from its November collapse, with Brent crude oil rallying 10% MoM to end the year slightly below the $80/bbl level – 50% higher for 2021.

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