The insane stock market year 2021

The bigger the problems in 2021, the faster stock prices rose. Young people threw themselves into stocks, cryptocurrencies became a parlor game and house prices exploded. But there was not a cent to be earned on good savings accounts. A look back at the world of money in 2021.

Peter de Waard

Just as water flows to its lowest point, money went in the direction of the greatest return last year. There was also plenty of money. As a result of the aging population, more and more was hoarded. Governments and central banks had all had their money taps wide open in 2021 to combat the effects of the corona crisis and stimulate the economy. Nevertheless, the rise in share prices in 2021 was not only related to this flow of money. Stock exchange companies were less affected by the corona crisis than the rest of the economy, because they are hardly active in service sectors (catering, hairdressers, theatres). However, many platform companies are listed and benefited from the crisis, with the exception of Just Eat Takeaway, the big loser of 2021.

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Shares excel in corona year

The bigger the problems, the faster the stock prices rise. It’s the paradox of 2021. The global economy was in sackcloth with new lockdowns after variants of corona emerged, stagnating supply lines, inflation, a real estate crisis in China, a storming of the Capitol and increasing tension between the West and the superpowers China and Russia.

But the world’s stock markets had their best year since 2009, the year the stock made up for part of the 2008 halving in prices. The Amsterdam stock exchange was one of the absolute stars of this. The AEX reinvestment index – the index that also includes the dividends paid – was even the largest riser in the world. The return on shares in Amsterdam was almost 30 percent, mainly because the tech sector (Asmi, ASML, BE Semiconductors) weighs heavily in the main Amsterdam index. ASML alone weighs 20 percent in the AEX index. Shell has now fallen to less than 10 percent.

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After the AEX fell by 32 percent in the early spring of 2000, when the first corona cases were known, the index only rose after that. The AEX stacked record after record. On March 31, the index surpassed the ancient record of the year 2000 of 703.18 points. Less than six months later, the index, bolstered by sharp gains in the first half, passed 800. The record was reached at 827.57 on November 17.

Then came the blow in the price increases. This was due to the appearance of omicron and the plans, especially by the US central banks, to fight rising inflation with interest rate hikes. On Friday, the index closed just below 800, at 797.93 points.

The AEX hardly says anything about the state of the Dutch economy. Many companies listed there are only located in the Netherlands for practical, fiscal or historical reasons. And the other companies also have their activities mainly abroad. The Midcap index of medium-sized listed funds has a much more traditional composition and is more representative of the Dutch business community. It rose just 14.5 percent this year.

Many new investors on the stock market

The stock market bonanza also led to a spectacular influx of new investors. In the Netherlands, 1.9 million households are now active on the stock market. That is 200,000 more than last year, according to a recent study by the Netherlands Authority for the Financial Markets (AFM). A striking number of young people, especially in their twenties and thirties, have started investing. They did not do this via the traditional banks, but via the free or almost free smartphone apps from brokers such as Trading 212, eToro and DeGiro.

Because of the lockdowns, many young people were bored to death, playing with stocks became an outlet – a real life game. They did not limit themselves only to funds in Amsterdam, but invested worldwide: from Alibaba to Volkswagen. Tesla was the most popular stock for many new investors.

The investment apps operated as social networks, in which investors gave each other advice or acted together. An example of this is copy trading, where investors could follow the strategies of their best performing or favorite investors.

At the start of the year, millions of retail investors made massive investments through the Robinhood app in GameStop, an ailing chain of computer game stores. Hedge funds had taken large short positions in this stock – shares sold over time – with the expectation that GameStop would go under because of the lockdown and they could pick up the shares for next to nothing. But because of the purchases, the price rose so spectacularly that many of the hedge funds had to take billions in losses. With an 800 percent increase, GameStop also became this year’s big winner worldwide.

Later similar actions were taken with the shares of smartphone maker Blackberry and the cinema chain AMC. Major investors spoke scornfully of the ‘gamification’ of the stock market. Charles Munger, the 97-year-old right-hand man of super investor Warren Buffett, called Robinhood an evil outgrowth of securities trading. “I find the way in which novice investors are lured in and encouraged to trade as much as possible is regrettable. I think civilization is better off without such apps.”

No less than 25 new funds on the stock exchange

It is often predicted that the stock market has closed down. Rather than transferring the shares to a public stock market, companies would be better off strengthening their equity by doing business privately with large investors, such as so-called private equity funds. Then they don’t have to submit to the scourge of the market every day. It also avoids a lot of administrative hassle. But now that prices are sky-high, the IPO is more popular than ever. Ernst & Young recently announced that 2,388 companies worldwide were going public in 2021; an increase of 64 percent.

Amsterdam got its share. The Damrak welcomed 25 new funds. By far the biggest newcomer was the music label Universal Music, with big stars such as Taylor Swift, Billie Eilish and Lady Gaga. In addition, the Spanish fintech company Allfunds, the Polish parcel service InPost, business site developer CTP, call center company Majorel and software maker MotorK came to the stock exchange. The agreement was that all these companies are active abroad. The largest Dutch IPO – that of Coolblue – was cancelled.

As a financial center, Amsterdam was able to benefit from Brexit this year. Many British brokers were forced to open a branch in the Dutch capital because they were no longer allowed to trade in mainland European equities from London. At the beginning of this year it turned out that Amsterdam even surpassed London in trade volume. It wasn’t just about Brexit. Amsterdam also benefited from the fact that listed companies in the Netherlands can better protect themselves against unwanted intruders.

In addition to eight companies, 17 so-called spacs (special purpose acquisition companies) to the Amsterdam stock exchange. These are empty investment funds that go public to collect bags of money and then take over an existing company. It became a popular way of avoiding the mandatory publication of a prospectus – in which companies have to expose themselves completely. On the other hand, the damned dividend tax made Unilever and Shell decide to move their head offices to London.

Pyramid scheme or money of the future

No less than 700,000 Dutch people bought crypto coins this year. Another 3.5 million Dutch people are considering it. Cryptocurrencies continued to be popular as an investment. The best-known by far, bitcoin, became 72.7 percent more expensive after a wild ride. Opinions are still divided about it. Despite the lack of regulation, crypto-evangelists believe in the salvation of the currency, like Staphorst believers in the afterlife. Opponents see a large pyramid scheme that eventually leads to the latter losing their money.

Elon Musk, the owner of Tesla and SpaceX, who became the richest man in the world this year, had a lot of influence on the Bitcoin price with his tweets. After he announced that he had entered the currency for 1.5 billion dollars, the value rose by 20 percent. Things suddenly went wrong in May, when Tesla decided to stop accepting bitcoins as payment. Shortly afterwards, the Chinese government banned the energy-consuming mining of bitcoins. The price halved in two months. But on November 10, the bitcoin price stood at almost 60,000 euros, after which 20 percent fell in one weekend when the omikron broke out.

Other cryptocurrencies also rose spectacularly. Ethereum – the most popular after bitcoin – rose from 600 to 3,300 euros this year. That’s a 450 percent gain. And Dogecoin – another cryptocurrency promoted by Musk – even became 3.225 percent more expensive. And it can get even crazier: the Shiba Inu won a staggering 71,000,000 percent. In addition, there was the bizarre emergence of the so-called non fungible token (nft), title deeds of digital items such as artwork or tweets. On March 11, artist Beeple sold his digital artwork through Christie’s safe house Everydays: the First 5000 Days for $69 million.

Forecast for 2022

Prediction is dangerous. There are gurus who think that the value of bitcoin will multiply in 2022. There are also those who think that the value can drop to 100 euros. Citibank director Thomas Fitzpatrick predicts a price of 300 thousand dollars. Famed hedge fund manager John Paulson and super investor Warren Buffett expect a collapse.

It is no different for the stock market. Some pessimists predict the biggest crash ever in 2022. Others think that the AEX could still rise to 1,200. But most analysts predict quite safely a 10 to 15 percent increase, as they do every year. At the end of 2022, the AEX would then be at 930 points. And the Standard & Poor’s at 5,200 points. Everyone knows the risks. Stocks are expensive. Rate hikes may cause investors to move to safer options. Political tensions are looming and no one knows how the pandemic will end. The most famous cliché: ‘2022 will also be a wild ride’.

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