The China Drop

China's crackdown on large online enterprises, combined with a housing market meltdown, has wiped over a trillion dollars off the country's markets this year.

Alibaba, China's Amazon, has dropped over 50% in value. The golden dragon index of Chinese firms traded in the United States is down 40%, and homebuilder Evergrande has just become the index's biggest-ever default.

  • This has wreaked havoc on China's high-yield or 'junk' bond market, which has lost nearly 30% of its value
  • A further drop in home sales could lead to another percentage point drop in Chinese GDP, according to AXA Investment Managers' Head of Active Emerging Markets Fixed Income Sailesh Lad

ARK, MEME Stocks And SPACs

This year, retail traders flocked to Wall Street in droves, causing massive trading volume and eye-popping movements in the so-called "meme" stocks.

  • GameStop's stock soared about 2,500 percent in January, but it will close the year with a 730 percent gain after giving back much of the gains. Another meme favorite, AMC Entertainment, is still up approximately 1,350 percent for the year, despite reaching a high of 3,200 percent in early June
  • Tesla, the electric car industry's de facto leader, has recovered from an early-year slump. Other funds or equities associated with innovation, such as the ARK Innovation Fund and several solar energy stocks, BioTech shares, and special purpose acquisition companies or SPACs, are down 20% to 30%

The Fed's Inflation Misunderstanding

In 2021, the epidemic disrupted the global supply chain, making it difficult to meet demand for everything from microchips to potato chips, causing a spike in inflation to become a major concern for investors.

  • The Federal Reserve said this month that it will cease its pandemic-era asset purchases sooner than expected, and the Bank of England became the first G7 central bank to raise interest rates since the COVID outbreak, citing rising inflation
  • Other major central banks are likely to follow suit next year, although some of the world's most developed economies are already well on their way

Emerging Markets Go Under, Again

Coming into the year, investors had high hopes for emerging markets, but the reality has been virtually the polar opposite. EM stocks have lost 7% as a result of China's troubles and COVID's tenacity, which appears even worse when compared to the world index's 13 percent gain and Wall Street's 23 percent gain.

  • Local currency EM government bonds have also performed poorly, shedding 9.7% of their value. Dollar-denominated bonds have performed better, particularly in oil-producing countries, although J.P. Morgan's EM Currency Index, which excludes China's yuan, has lost about 10% of its value

The Brazil Slump

Brazilian equities recovered some of their losses after approaching a bear market, but they still had a very hard time, owing to concerns about the country's economic prospects and rising wagers on higher interest rates.

  • Local assets have plummeted as President Jair Bolsonaro's administration looked for methods to boost expenditure ahead of the election while skirting budget constraints. Bolsonaro announced that he would provide aid to truck drivers and that he will strive to modify the way the expenditure cap is calculated
  • Because of the possibility of higher government expenditure, traders are betting that Brazil's central bank would raise interest rates more aggressively to keep inflation under control

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Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

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