In equities we trust

The Signal and The Intersection are taking a break until January 3, 2022. However, we will not leave you without your daily fix. This week we will bring you special editions of The Signal with a selection of stories based on themes that dominated 2021. Today’s is on stocks. Happy holidays to all our readers.

For global financial markets, the second year of the Covid-19 pandemic has been nothing less than phenomenal. While it was calamitous for the world, equity markets, at least parts of them, never had it so good.

Supply chains broke down, inflation spiked, and GDP growth was dodgy. And now Omicron is threatening to shut down fledgling economic activity. The virus kept global investors on edge throughout the year, and yet it remained one of the best in terms of availability and cost of capital. Shares remained one of the most favoured among traditional asset classes.

There were events such as the Greensill blowout and Archegos collapse that created tremors in the markets. China’s crackdown on some of its marquee technology companies also sent shockwaves through world markets. It was mostly a good year for the Indian market, which saw a record number of IPOs and investing spree from foreign investors.

The Rise Of Meme Stocks

The stock markets had not seen anything like it. Wall Street was practically hit by a revolution when a bunch of, as this Esquire article says, “bored, homebound, mostly millennial dudes turned to Reddit to learn how to trade stock options”. With the subreddit WallStreetBets acting as Pied Piper, these rookie traders, millions of them, literally took the stock of GameStop, a struggling video game company, “to the moon”. It caught seasoned investors in an unprecedented short-squeeze. Even hedge funds ran for cover or took massive losses.

The GameStop trade was one for the history books. Since then meme stock communities have regularly challenged the high and mighty of Wall Street, laying low multi-billion dollar funds and influential banks.

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Gone In Two Days: $20 Billion

In March 2021, billionaire investor Bill Hwang set off alarm bells ringing when his family office Archegos Capital Management collapsed, leaving gaping holes in banks associated with it.

Archegos took big positions in ViacomCBS and several Chinese tech companies via an instrument called “total return swaps”. It allowed Hwang to anonymously take exposures to companies. But prices fell and banks seized their holding, impacting prices even more. Credit Suisse, Morgan Stanley and Nomura faced huge losses. Hwang had lost about $20 billion in two days.

Following the Archegos debacle, the US markets regulator, Securities and Exchange Commission, proposed rules for more transparency that can restrict investors from hiding their holding in public companies.

Surf’s Up For Indian Startups

If you thought there were too many startups becoming unicorns or filing for an IPO every other day, well, you weren’t wrong. India replaced the UK as the third country behind the US and China to host the most number of unicorns, according to one report. Privately held startups raised a record $36 billion in 2021.

The year was extraordinary for the Indian stock market as well. It helped companies raise more than $15 billion through IPOs. Tech startups alone raised about $6 billion. Food delivery startup Zomato started the party this June and it extended well into the third quarter with Nykaa and Policybazaar. The biggest of them all, Paytm, however, snapped the streak in November 2021 when it crashed on debut, raising the question whether its $20 billion IPO valuation was justified.

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Living In Interesting Times

China saw the biggest stock meltdowns in recent history when the government began a crackdown on technology companies operating in various sectors including education, finance, ride-hailing and gaming. The regulatory attack wiped out $1 trillion in market value in one dramatic week. It even diverted some investors to India.

Global market also had visions of a Lehman Brothers redux when a crisis hit the property market in China. Its biggest developer Evergrande is teetering on the verge of collapse under the weight of its $305 billion debt burden. The distress has also crushed China’s high-yield bonds market.

The winds may, however, shift back in China’s favour in 2022 as Beijing winds down the regulatory clampdown and its central bank begins a monetary easing.

The Multi-trillionaires

As the year draws to a close, the Apple stock was inching towards $182.85, a mark when reached will value the company at $3 trillion. That’s the market capitalisation of all BSE-listed firms and about as much as India’s GDP. Apple may soon be joined by Microsoft and Google in the exclusive $3 trillion club.

The year also belonged to Tesla and Elon Musk who became the world’s richest person courtesy the rise in the EV maker’s value. The Tesla equity options are now so popular that its volumes now dominate the US options market. Such is investors faith in the company that some of them such as Singapore billionaire, Leo KoGuan, continue to accumulate the stock.

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