1.
2021 saw more underperformance for international stocks (MSWORLD) and emerging markets stocks (EEM)s relative to the S&P500. The U.S. tech titans have become the darling of global investors, considered as the last remaining “safe haven” asset in a low growth and risky world.
2.
EM ex China (EMXC) didn’t perform too badly in absolute terms, in line with MSCI World ex U.S. EM as a whole was weighed down by the collapse of China’s internet stocks (KWEB), the favorites of international funds.
3.
In 2021 investors learned that China cares about its currency and its bond market but not much about stocks , particularly those of “frivolous” companies engaging in anti-social activities (internet). While EM bonds (EMCB,EMHY) lost value relative to U.S. High Yield, China’s bonds (CBON) rose steadily.
4.
In the Chinese market (MCHI), stocks held mainly by foreigners (KWEB, CQQQ) did poorly but local stocks (CNYA) and, even more so, local tech stocks (CNXT) picked up the slack.
5.
Global EM stocks, despite the rally in commodity prices (GYX, industrial) commodities index), did poorly, which is unusual. Commodity-rich markets like Chile (ECH) and Brazil (EWZ) lagged badly. Commodity prices were driven by climate politics and inflation, no longer by China which is not the driver of global growth it once was.
6.
The collapse in the correlation between commodity prices and EM is seen in the extraordinary divergence between Chilean stocks and copper. Chile is overwhelmed by politics, and copper inflows are serving only to facilitate capital flight. Investors in Chile and elsewhere may be anticipating the likely return of strict capital controls.
7.
EMEA ( Europe, Middle East, Africa) led EM equity returns in 2021, boosted by the oil-sensitive markets of the Persian Gulf.
8.
There’s always a bull market somewhere. In 2021 it was U.S. tech titans and the Middle East. Taiwan, India and Vietnam were also winners.
9.
Latin America stocks (ILF) underperformed Asia EM (EMEA), as they have persistently for the past decade.
10.
Technology stocks outside of China fell back to earth in 2021. Latin American tech stocks, fueled by the happy dreams of global venture capitalists led by Softbank, experienced a general collapse.
11.
China’s share of the MSCI EM index fell sharply, replaced mainly by Taiwan and India.
12.
The fall of China’s internet titans caused significant changes to the MSCI EM’s top holdings. Indian stocks are becoming more prominent, a story likely to extend for the coming decade. Commodity related stocks (Gazprom, Vale, Al Rajhi Bank) are back, also a harbinger of things to come
13.
After a decade dominated by growth and momentum, other factors started to work in 2021. Value and small caps outperformed in global EM and every region. The very few still active value investors in EM finally had a good year while most EM active managers (by now almost all closet growth investors) suffered.
14.
All the traditional academic factors did well in 2021, led by small caps (EEMS) and momentum (PIE).
15.
The Covid-19 pandemic has been disastrous for much of emerging markets, the worse hit being Eastern Europe and Latin America. The fiscal impact (higher debt levels) and social consequences (impaired education for the poor) have severely undermined the growth prospects for Latin America.
