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2021: Another busy year for markets

At the end of every year, we like to look back at the last 12 months and take stock of the key issues that impacted markets. Well, there aren’t many years in living memory that were quite as busy as 2021 (excluding, perhaps, 2020). 

From the Delta variant to the Omicron variant, 2021 has been defined less by Covid-19 itself and more by the knock-on effects of the disruption it caused last year. Heading into 2022, the virus may be a disruptive force once again, as we wait to see the extent to which the Omicron variant will affect society. 

Here, our Chief Investment Officer, Richard Flax, discusses the key topics from 2021 and looks at the areas that could define the coming year.

From one variant to another

First, on healthcare. 2021 started with one variant and ended with another. Between the two, we had the global rollout of vaccines, a remarkable achievement both medically and logistically. And while vaccine distribution has been quite uneven on a global basis, vaccines have allowed for economies to re-open and recover over the course of the year.

That reopening helped drive a year of strong returns in equities – with broad developed market indices up over 15% YTD (TBC) at least as of mid-December! On a global basis, companies were able to grow faster than most analysts had expected. Emerging Markets haven’t fared quite so well – and we’ll explore that in a bit more detail later.

On the macro side, while we’ve seen strong growth – the real story has been about inflation. Transitory was the watchword for much of the year – as Central Bankers tried to reassure us that high inflation wouldn’t stay long. Now, at the end of the year, with inflation still showing little sign of dissipating – the message has changed a bit – and we’re waiting to see just how quickly Central Bankers will cut back on their support for the global economy. 

In the bond market, the most notable feature for us has been how low bond yields have remained – suggesting that bond investors are more concerned about an over-reaction from the US central bank, even with inflation at a nearly 40-year high.


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Supply chains stuttered

In a similar vein, we spent much of the year thinking about supply chains – whether it be a shortage of truck drivers, availability of vaccines or a container ship blocking the Suez canal, the global supply chain has been a constant topic of discussion. 

The job market has been another focus in 2021. Employers have had a tough time finding workers – some have chosen to retire or take time away from work. With jobs plentiful, workers have pushed for higher wages. Large employers have begun to pay signing bonuses, and that’s sometimes left smaller businesses struggling to catch up.

In terms of global themes, the environment has stayed very much front and centre this year. The outcome of COP26 may have disappointed many, but the focus on ESG in financial markets continues to grow.

All eyes on China

China has been another focus of attention in 2021 – really for two reasons. First, as the government clamped down on large tech platforms, prompting a de-rating of tech names in the Chinese equity market. Second, on the property side, as a decision to act on excessive leverage in the sector has left some large players struggling. 

And, lastly, we had a peaceful transition of power in the United States. It seems like a long time ago, but it seems clear now that we very nearly didn’t! 

So, 2021 has been a year of strong returns – particularly in developed market equities – even during a period of macroeconomic volatility – and the recovery from the 2020 recession has been faster and stronger than we’d have guessed. 

As we look forward to 2022, we think a lot of these issues are going to continue to drive financial markets. Be it around COVID, growth, inflation, monetary policy, ESG, technology and innovation, geopolitics – we think these are some of the opportunities and challenges that we’re expecting to face in the coming year. 

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