Summary: With little change from the final trading days of 2020, stocks in Asia trade hold near all-time highs on first trading day of 2021.
The S&P 500 and the DJIA closed 2020 at all-time highs. With little change from the final trading days of 2020, stocks in Asia trade hold near all-time highs on first trading day of 2021. This as stimulus spending and vaccine rollouts bolster fears surrounding record virus cases across the globe and tough lockdown measures as the COVID-19 pandemic shows no signs of slowing.
There is little change in our overarching view of late 2020 that emerging markets, commodities and bets on higher inflation (base effects, pent up demand and supply crunches) are the place to be. Alongside a shift in market leadership toward more cyclically orientated stocks, sectors (energy, materials, industrials, financials etc.), and geographies with 2020’s highflyers hampered by rising long end yields.
These trends continue to hit their stride as trading for the new year resumes, with the US dollar sliding and gold, stocks and bitcoin climbing to kick off the year – momentum is strong, valuations mean little and exuberance is abound as various risk assets ascend into the stratosphere – it’s a momentum world out there. Gold hitting a 2-month high, bitcoin surging through US$34,000 and in Asia trade today the Yuan rising and Kospi hitting its highest level in more than 5 years, as investors continue to pile into risky assets backed by the premise of ongoing central bank intervention, further fiscal stimulus and vaccine rollouts. Relentless USD weakness adding fuel to the risk asset fire, commodities, hard assets and cryptocurrencies in particular reveling in the broad USD weakness.
New Year party aside, on the horizon, the two Georgia runoff elections on Jan. 5 will determine which party controls the Senate, and the interplay between the pandemic spread and tighter restrictions vs. the vaccine rollout will be catalysts to test exuberance through the coming weeks. However, despite the euphoria and froth visible on the surface, CFTC positioning continues to show investors holding onto hedges, with the “wall of worry” being climbed finding room for further upside, sustaining "reflation trade” gains as economic recoveries resume into Q1. Particularly against the backdrop of more fiscal stimulus and free flowing central bank liquidity.AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
