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Looking back, the first half this year seems kind of inevitable now…
In the wake of last year’s momentum – possibly even euphoria (see my FY-2017 performance review) – H1-2018 was an unwelcome cold shower for investors. But such is how the market gods operate… And in reality, momentum was limited mostly to US investors (in particular, FAANG fans), who enjoyed 19-25%+ returns last year. Spare a thought for (unhedged) European investors: A weak dollar (down 14% vs. the euro) diluted away most of their US stock returns, while locally they earned a fairly pedestrian sub-8% return. So it’s clearly galling for European investors to now see their local markets down year-to-date (vs. a small US gain)…particularly when most of the ‘blame’ (if there is such a thing) for recent market wobbles arguably belongs to America.
But surveying other markets, we’ve seen more savage reversals of fortune elsewhere this year. Emerging & frontier markets investors enjoyed 32%+ returns last year, but were blindsided this year as markets plunged across the board, with negative returns exacerbated by local currency weakness (high current account deficits being targeted in particular). In fact, quite a few individual markets entered bear market territory. And yes, I mean actual 20%+ declines…not the feeble 5-10% ‘bear markets’ the financial media breathlessly reports these days!
Of course, the real
disaster bear apocalypse happened in the crypto market – remember this table?
Take a moment & marvel once more…seems like an awful long time ago now, eh?! While Bitcoin peaked mid-December (rather unfortunate for all those kids who persuaded their folks to buy in over Xmas!), Ethereum & the rest of the market’s incredible momentum carried right into the first/second week of January. Since that peak, the entire crypto market has collapsed almost 70%, with its end-June market cap now barely exceeding $250 billion. Clearly, my #CryptoFOMO theory hit a brick wall: Despite noting a possible crypto-wobble (as I published this post mid-Jan), I argued that new money might not be ready to dive into crypto, but last year’s crypto gains would surely inflame & elevate investors’ risk appetite in the equity markets. Obviously, at the time, I didn’t quite envision such a horrific crypto collapse…or the subsequent schadenfreude.
However, I’d still argue there’s a significant asymmetry here, in terms of potential risk/reward: Crypto euphoria could well re-emerge & spill over into equities…but on the other hand (hopefully, I’m not being too blasé here!) the popping of an asset class/bubble that can be measured in the mere hundreds of billions isn’t all that relevant or serious in the global scheme of things.