Europe and Wall Street close their third best year of the century

Although in the middle of the sixth wave of Covid 19, with the omicron variant exponentially increasing the number of infections, causing dinner cancellations and canceling hotel and flight reservations, the investor’s attention is once again focused on the difficulties to reconnect with the family and enjoy of Christmas and, above all, how a return of the confinements would affect the world economy – as several countries have already partially applied to try to stop the contagions. It can easily be forgotten that 2021 has been one of the best trading exercises of this century, which began with the dot-com debacle, but is demonstrating resilience worth studying during this pandemic.

If the behavior of the MSCI World From the point of view of a European investor, that is, in euros, it turns out that this world index has reaped a gain of 20.59%, which makes 2021 the fourth best year of this century, behind 2005 , when it revalued 23.22%, 2009, which closed with a yield of 23.63%, and 2019, when it ended with a spectacular rise of 27.68%, the best exercise in the last 21 years.

If we only look at the behavior of the North American stock market, it turns out that the S&P 500 has managed to revalidate its all-time highs to 4,798 points, after obtaining a yield in 2021 of 27.82% measured in dollars, which means the third best year for the index in this century, after the 28.88% it achieved in 2019 and the 29.60% it reached in 2013. For an investor in euros, 2021 has been the second best year in the last 21 years, after the 31.4% harvested in 2019.

But if an investor had simply relied on to place their money in the EuroStoxx 50, the most representative index of the European stock market, would have achieved a revaluation of 20.21%, the third best performance data of this selective in the century after the 24.78% obtained in 2019. A return that after the fall of the 5.14% suffered in 2020 has known a great compensation. And the prospects for the coming years continue to be equally promising for the European selective, since the profitability expectation, measured by the inverse of the PER, stands at 6.75%, above the 5% expected for the stock market North American.

This good behavior of the European stock market was influenced by the return of investors towards the more cyclical companies at the end of 2020, when the appearance of the first vaccines against Covid allowed a glimpse of the nearest end of the restrictions and a return to a certain normality. And the European stock market has a more cyclical component than that of the United States, more linked to growth in large companies, especially technology companies.

This was reflected in the first part of 2021 in the rise of the values ​​most linked to the economic recovery, such as airlines and tourism. But the emergence of the successive waves caused them to lose steam, until the appearance of the omicron variant has made the investor ship turn again towards more defensive values.

Inflationary pressures have led to fears that interest rate hikes will be anticipated in the main western economies, as has ended up happening in the United States, which has begun to withdraw its debt purchase program and has finally announced three rate hikes for 2022, in a preliminary way, which has anticipated a similar panorama in Europe, despite the fact that until 2023 no increase in official rates is visible at the moment.

Investors have shown their interest in European financial institutions, which have also recovered the possibility of distributing dividends. And this has made the bank sector index the most bullish in the Old Continent, with a rise of 34%, followed by the technology index, with 33.9% and the media, with 32%. In the queue have been precisely those related to leisure and tourism, which have suffered a fall of 2.37%, and utilities, with a loss of 5.97%. The return of investors in the final stretch of the year towards growth values ​​has once again favored the large technology companies in the United States, which have led the increases in the index, despite the fact that the rest of the values ​​have had a more moderate behavior.

Iker Barrón, CEO of Portocolom AV, highlights precisely the appetite for risk in the markets, as evidenced in his view by the fact that the main North American equity indices close at highs and with significant revaluations. “2020 has been a year in which passive investment has outperformed active investment in general terms, both in terms of cash flows and returns. In this last aspect, it is necessary to highlight the changes that have taken place along the way. throughout the year from growth values ​​to value and vice versa. And equally remarkable is how the strong pull registered by the main indices is concentrated in fewer values ​​than is desirable. And within the equity party, the ugly duckling has been the Chinese stock market, which has been highly conditioned by the regulatory lurch of the Chinese authorities, as well as by the cooling of its economy, which has ended up generating a major crisis in the real estate sector, “he says.

With potential

Although we are now in the middle of the sixth wave, analysts continue to offer good projections for the recovery of the European economy, thanks to the aid programs of the European Union, funds that will continue to arrive in 2022. “The German economic activity has been seen strongly held back by tight supply due to its dependence on exports and industrial production. In addition, high inflation has contributed to the poor performance of the German economy in 2021. But with the reduction of bottlenecks and the normalization of inflation, growth is seen to strengthen again in 2022 and approach 4%. The new tripartite center coalition will focus on green transition, digitization and infrastructure improvement. This will require only a gradual withdrawal of support of fiscal policy in the coming years and, therefore, a return to activity “, explains Martin Wolburg, senior economist at General i Investments.

Natixis IM is also optimistic about the growth potential of Western economies. “Looking ahead to 2022, we find a positive outlook as Europe and the US appear determined to avoid austerity. Growth will remain strong in developed markets during the first half of the year, followed by gradual normalization in the second half. “, point out James Beaumont and Nuno Teixeira, of Natixis IM Solutions. “Our economic scenario for 2022 is based on growth continuing to be above trend during the first half of next year, especially in developed markets, as consumer spending remains especially strong, supported by considerable excess accumulated savings during the various closings. And we expect growth to normalize as the strong reopening comes to an end, excess savings are spent and emergency stimulus measures are withdrawn, “experts underline.