First Futu, then WeBull, and now Longbridge. Taking the subway home in the evening, I have been amazed by the loud and aggressive campaigns for online brokers in Hong Kong’s Central Station. This in a year where the local Hang Seng Index was actually one of the worst-performing markets in the world (down 12%).
These brokers also offer their services in the US market though, and on Wall Street it was quite smooth sailing in 2021. Stocks closed almost 30% higher after a more than 20% return in 2020. The social element (“chat with your investor friends”) plays an important role in the campaigns. Investing is fun, lucrative, and so easy!!!
It is great to see so many new players with a newfound love for our favorite asset class equity! Robinhood encouraged a new group of equity investors when commissions were cut to zero. The patient and thoughtful long-term equity investors that trade infrequently have been joined by inexperienced traders looking for instant gratification.
On your phone, it has become so simple to buy a stock through the push of a button. For many, a stock is not more than a chart that is mostly going up, recommended by an influencer. If it disappoints, you can always get out the next day, at zero cost! The new traders have money and good ideas but are also likely to have weak hands when the going gets tough.
The equity game has also become a winner-takes-all game, with the US and ETFs on the winning side. Out of the nearly USD 1 trillion that was put to work in equity funds in 2021, more than 70% went into US equity. And, indeed, US companies do the best job in managing their shareholders’ equity, while in most other countries, other stakeholders need to be managed too.
‘American confidence in equity for the long run is as high as is Chinese trust in buying property’
American confidence in equity for the long run is as high as is Chinese trust in buying property. And even they may join the equity game after Evergrande has put an end to home price increases in China. Asian investors also want to put their money into the US winners that now go under the acronym -well-known to aging fans of the Muppet Show- MANA-MANA: (Microsoft, Apple, Nvidia, Alphabet, Meta, Amazon, Netflix, and Adobe). With a touch of Tesla to top it off.
ETFs have mopped up an amazing 93% of global equity fund flows in 2021. You buy an ETF as a basket of stocks with a common driver that sounds appealing, but you don’t know exactly what you are buying, nor at what multiple. Let us make the self-serving case here for actively managed strategies where Robeco portfolio managers will continue to do the fundamental legwork, and make sure that the stocks in our baskets are still attractively valued.
Many investors ‘play’ the market today with money being plentiful. This money has been provided by the printing presses of the world’s major central banks. At the same time, governments no longer seem to be bound by fiscal deficits, as they have spent lavishly during the Covid-19 pandemic, without any punishment from the ‘bond vigilantes’. Most likely, a chunk of that ‘emergency support’ landed in equity markets. The table below illustrates how much the global money supply has grown since the end of 2019.
No wonder that some folks now consider the world’s main currencies to be Monopoly or Mickey Mouse money. There is so much of it! Quite a few of these sceptics have looked into crypto markets to find protection. Supply here is capped by design for each currency, but there is no limit to the number of cryptocurrencies that could eventually be created.
Crypto clearly went mainstream in 2021. As I watched sports events such as European soccer or Formula One racing, the crypto exchange advertisements could not be overlooked. The overall market cap of these currencies is no longer insignificant – close to USD 2.3 trillion – but still less than the market cap of Apple, the world’s biggest stock, at USD 2.9 trillion.
More gamification can be found in the relatively young market for special purpose acquisition companies, or SPACs, as many of these equity deals are now done through celebrity endorsement. Buy a SPAC from your favorite sports star, music idol, or from ‘real estate icon’ Donald Trump. This way the rich and famous can literally monetize their fan clubs.
And on top of that, we now have the larger-than-life metaverse. Is it a game, is it for real? Investors are wrestling with the implications and the potential ‘winners’ of this trend. It must be important since Facebook even changed its name to Meta. It is hard to envisage a future where we all have a second life in a parallel online economy, but it is worth to revisit Spielberg’s 2018 movie Ready Player One, or to simply speak to teenagers. More games, that’s for sure!
‘Central banks are aware they may have overdone their stimulus with inflation popping up in many areas’
In the real economy, central banks are aware they may have overdone their stimulus with inflation popping up in many areas. We will thus see more tightening announcements in the first quarter, as they try to normalize policies. The US Federal Reserve (Fed) is now expected to make its first hike in March 2022, with a few more planned for later in the year.
This has historically been a more difficult environment for emerging equity markets to perform. Recent US dollar strength contributes to our outlook being more muted here. For developed markets, our outlook remains bright. As the strong keep getting stronger, earnings expectations are still likely to be outgunned.
In both developed and emerging markets, the outlook for corporate earnings remains supportive. 2021 was a bumper year, but we expect decent growth for 2022 as well. Here is another winner-takes-all element, as the large, listed companies are generally much less affected by the pandemic than the smaller companies, and particularly by those in the service sector.
What will 2022 look like? More fun and games for those in the market, or a return to old-fashioned investing? Well, we will definitely start with more games, as the 24th Winter Olympics will be held in Beijing in February. Investors wonder whether Chinese stocks can come back after offshore listings were hard hit by regulation and the burgeoning property sector was heavily curtailed in 2021.
A remarkable USD 50 billion of money has continued to flow into this underperforming market, which is a rare sight in momentum-driven markets. We remain fairly cautious for now, but the one country with decent real rates at least has room to support the economy via rate cuts.
In the end, it is likely that under a tightening monetary environment, fundamental analysis will outlast gamified meme stocks. The first quarter may still see the tail end of the ‘rally of everything’, but the likelihood of a more discerning market environment is increasing in 2022.
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.