The year 2022 is proving to be a bad year for the global investors. The investors’ wealth erosion in the US financial markets, in the past one year, matches the losses suffered during the global financial crisis in 2008-09.
If we consider the top 10 global stock
markets, in terms of market capitalization, eight of these markets have yielded
negative returns this year (in local currency), whereas the rest two are
unchanged. Given the USD strength against most currencies this year, the
returns would be much worse for the global investors who participated in these
markets by investing US dollars.
Hang Seng, the benchmark index of the Hong Kong stock market that is mostly used by the global investors to invest in Chinese companies through ‘A’ shares of these companies, has seen 33% draw down in the past one year. With this draw down the 10yr return of Hang Seng is negative 25%.
NASDAQ Composite, the benchmark index for technology stocks listed in the US, is the second largest stock market in the world with a market capitalization exceeding US$22trilions. This Index has lost over one third of its value in the past one year. European (Euronext) and Japanese (Tokyo Stock Exchange) equities have also seen a value erosion of over 10% in the past one year.
Besides stocks and bonds, other asset classes like Bitcoin (-70%); Gold (-13%) and US residential real estate (-13%) are also down materially. Even the cash positions are effectively down by 3 to 5%, given the negative rates on saving deposits.
This is however plain statistics. This may be interpreted in a variety of ways by various persons; depending upon which vista point the interpreter is viewing these data points and what colour eyeglasses they are wearing. For example—
(a) US$100 invested by an investor in US Tech 10yrs ago is still worth US$250, despite it diminishing by one third in the past one year. But, a large number of investors who started investing (or increased their exposure significantly) during the pandemic may be sitting on material losses.
(b) An investor in US equities who was leveraged 3x in the past one year may have lost his entire capital, regardless of when he started investing or what he earned in the past. The losses would have been worse if the investor was leveraged in US treasuries. Whereas, an investor following a strict asset allocation strategy with no leverage, may not be doing as bad, though he might have also witnessed a drawdown of ~20% in the past one year.
(c) A handful of highly skilled traders and hedge funds might have made very good profits by taking short positions on various assets, though a large majority of investors and traders have suffered losses.
(d) A foreign investor, e.g., Japanese or Indian, parking his money in USD deposit may have outperformed a large majority of investors; whereas a US investor investing in Asian securities might have fared much worse.
(e) Many investors are terming this sharp fall in value across asset classes as a once in a decade opportunity; citing that historically this kind of fall has invariably been followed by sharp rallies. Whereas, there is no dearth of experts who believe that we are not even half way through the corrective phase; and asset prices will fall much more to adjust for the reversal in QE programs unleashed by the central bankers and fiscal profligacies of the governments.
