• Emerging Markets Have a New Look: Many asset managers still believe emerging markets are driven by energy and commodity prices. While these two sectors still have a heavy weighting, technology companies have begun to exert their influence in ways that are changing the traditional narrative of the EM sector. For example, the tech-driven companies of Alibaba, Taiwan Semiconductor, Tencent Holdings, and Samsung are now the four largest companies in the MSCI EM Index and compose close to 25% of the index’s value.
• IPO’s Booming: So far this year there have been 302 companies that have had an IPO, 80% of which have done so through SPACs. If this pace continues, 2021 will mark the highest level of IPOs since the 1990’s. Despite many of these new stocks performing well post-IPO, there is concern among investors, as 81% of the companies going public last year failed to generate a profit in their 1Q21 earnings.
• Stimulus May Boost Stocks: A recent Deutsche Bank study found that Individuals age 25-34 that have online brokerage accounts plan to use 50% of their stimulus checks from the most recent $1.9 trillion pandemic-relief bill to purchase stocks. This is impactful since retail traders now account for 20% of US equity trading volumes (compared to 10% from hedge funds and 6% from mutual funds). This may directly benefit the technology-driven companies in the Nasdaq which are closely followed by many retail investors.
• Europe As a Value Play: The Stoxx Europe 600 index has outperformed the S&P500 in 2021 as investors have looked for less overvalued investment opportunities. In particular, the European Index is heavily weighted in value sectors such as Financials (17%), Industrials (16%) and Energy (5%) all of which are expected to perform well as the global economy reopens. Additionally, Europe’s market only has a 10% exposure to technology and communications compared to 37% in the US S&P500.