Running a country like China means never having to say sorry, especially to foreign investors in Chinese stocks. The capitalists learned this the hard way in 2021.
Beijing came roaring into the year with its pandemic-beating economy and tech companies rich in eyeballs the envy of the world. With 2021’s growth in the sack, he turned to “reform.” Whoops.
China’s tinkering arguably has long-term meaning: harnessing digital monopolies, deleveraging a runaway real estate sector, bringing US listed companies home. (How would Washington react if
were only negotiated in Shanghai?)
But the lack of clarity, to say the least, on the ground rules and end games hammered home the tech stars who had led the sensational run of emerging markets at the end of 2020:
Alibaba Holding Group
(3690.Hong Kong), and the rest. Their difficulties dragged the
iShares MSCI Emerging Markets
Exchange Traded Fund (EEM) at a loss of 7% in 2021, while the S&P 500 index rose by a quarter.
Things weren’t so bad everywhere. Taiwan and South Korea, whose combined weight in the emerging markets index is almost equal to that of China, cushioned Beijing’s blows.
Semiconductor manufacturing in Taiwan
(TSM) is up 10% this year, which is modest for the leading producer of the hottest raw material in the world. But that came after tripling at the end of 2020.
South Korean engineering-focused conglomerates, or chaebol, continued to increase their visibility in emerging technologies, from electric vehicle batteries to hydrogen fuel. Seoul is set to start 2022 on a high note as battery maker LG Energy Solution targets an initial public offering of $ 11 billion in New York City. National Social Media Champion
(035720.Korea) has weathered bearish tech trends to gain 45% this year and successfully expand its banking and payments components.
India, the fourth-largest emerging market, was another bright spot. the
iShares MSCI India
The ETF (INDA) gained 10% despite a strong correction at the end of the year. Investors ignored a nasty spike in Covid in the spring to focus on the vast nation’s ‘demographic dividend’ (median age 28) and the long track to moving the rural poor to an urban middle class (per capita income a third of that of China). Prime Minister Narendra Modi’s pro-market reforms – digitized state payments, built-in national sales tax, better bankruptcy laws – could gain traction after seven years in office.
Emerging market commodities stocks offered wild races in 2021. Brazilian iron ore giant
(VALE) climbed 30% until August 1, then fell by a third. that of Russia
(GAZP.Russia) broke record European gas prices by a 60% gain since the start of the year.
These names have, however, become a footnote of the asset class. Materials and energy stocks make up 14% of emerging market indices and information technology 22%, despite losses this year. Emerging markets have become an integral part of global innovation and the first virgin territory for digitization. That’s a good thing and exciting in the long run, although it does add volatility where there was a lot to begin with.
The bad news for 2021 was that mercurial politics will continue to disrupt the best-laid plans and analyzes of emerging markets. Joe Biden’s presidency has not eased US-China tensions. Instead, President Xi Jinping made his own regulatory rip. Global suppliers like Taiwan Semi and
(005930 Korea) are increasingly caught between the two and / or forced to make costly investments in both.
Savvy investors will catch the next Alibaba or Tencent somewhere in the years to come. It won’t be easy.