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The 2021 themes that paint an outline of 2022

Goodbye 2021, the year when the pandemic took a few more swings at us, crypto and meme stocks provided distracting side shows, climate change dominated, inflation gained the upper hand and US markets again ended the year at new highs. 

Although the alarm over the health and economic danger posed by the Omicron variant appears to be diminishing, a shift that is helping fuel another market rally, it is still causing disruption. As the year drew to a close, the chancellor was forced to resume a degree of financial support for the hospitality and leisure sectors, left reeling once again in a crucial trading period.

Besides the ongoing pandemic, 2021 was marked by the dominance – again – of the tech giants. Their strong performance has reflected our huge dependence on and interest in their products and services. Between them, they accounted for a large chunk of growth in the US market (itself accounting for close to 60 per cent of global markets). This year Microsoft joined Apple in the $2tn market cap club and Tesla joined the $1m club. But worries about inflation and rising interest rates towards the end of the year caused US growth stars to have a wobble. There could be more of that to come, given their generally super-high valuations. Nevertheless, their gains over the past two years have reinforced the message that UK investors must look beyond their home market.

Crypto delivered another rollercoaster performance, with bitcoin, the largest of the currencies, hitting a new high of $69,000 before falling back to $51,000. El Salvador even declared the coin to be legal tender and the US permitted the launch of its first bitcoin-linked ETF. Given the hair-raising thrills, it’s little wonder that millions of new speculators joined in the rush to buy or that regulators are still figuring out what they should, or can, do. But it hasn’t been going all crypto’s way: China has pretty much banned it and there has been a backlash against crypto’s harmful high energy usage. Which leads us to the other big theme of 2021: climate change. This never really left the headlines, with more evidence of the impact of global warming leading to renewed determination to bring this crisis under control. 

The progress made on agreements to end CO2 emissions and the big switch to electric vehicles will continue. Companies will carry on setting tougher goals for themselves and they will come under even more pressure than ever to be and to do better. While meme investors might be trying to teach hedge funds a lesson in a high-stakes game played out on internet forums, other types of activists have discovered they can achieve their goals through the courts (Shell) and the press (as BAE’s pension fund found when it lost a deal to manage a housing scheme in Dublin after an outcry about having “an arms manufacturer” as a landlord). Meanwhile, giant Dutch pension fund ABP has started the process of unloading its €15bn of fossil fuel holdings.

ESG investment opportunities will continue to rise in popularity – we all want to avoid being stranded and to benefit from the new tech that will save our world – but will remain as tricky as ever to navigate.

Other developments will have proved more familiar to experienced investors. Inflation took hold, ending the year at just above 5 per cent and close to 7 per cent in the US, prompting central banks to react with rate rises, the Bank of England’s nudge up to 0.25 per cent being its first in three years. More rate rises and slamming on the pandemic stimulus brakes could rock markets.

It was also a year in which the rules governing listings in London were changed in favour of giving a little bit more control to companies over their destinies. But it will be some time before we can tell if these changes bring about the desired consequences and not unintended ones.