Source: Zhithon Finance

At the beginning of this year, investors anticipated a weakening momentum in the global stock market, with rapid rate cuts in the USA boosting U.S. Treasuries and lowering the dollar, while emerging market currencies would strengthen, but the reality was completely the opposite. Despite the impacts of the Middle East and Russia-Ukraine wars, political turmoil in several major countries, and economic slowdowns, the global stock market is still expected to rise by 16% for the second consecutive year. In addition, due to various factors resonating, U.S. bond yields rose, the dollar strengthened, and emerging market currencies came under pressure alongside global government bonds.

U.S. stocks are terrifyingly strong.

First of all, the Chinese stock market experienced a volatile year; after the Chinese government announced plans to introduce stimulus policies, it surged nearly 16% in a single week in September, followed by several weeks of corrections. Overall, investors holding Chinese stocks achieved an annual ROI of 16.5% in 2024.

The rise of the global stock market can largely be attributed to the significant increase in the U.S. stock market for the second consecutive year, driven by the AI boom and strong economic growth attracting more global capital into U.S. assets, pushing the dollar up by 6.6% against other currencies in 2024. After Trump won the election on November 5, prosperity sentiment in the USA rose, as traders shifted their attention to the tax cuts and deregulation plans of the elected president, and the surge in animal spirits pushed the annual increase of the cryptocurrency Bitcoin to 122%.

Entering 2025, the global market will increasingly be influenced by trends in the USA. This risk factor emerged after remarks from the Federal Reserve this month suggested fewer rate cuts in the coming year disrupted the market. Prior to this, weak U.S. employment data and Japan's unexpected mid-year interest rate hike pressured dollar-denominated assets, leading to severe fluctuations in the global market due to the unwinding of yen carry trades, which triggered a brief decline in August.

Meanwhile, bond investors are increasingly worried that the proposed trade tariffs by Trump will exacerbate inflation, and are concerned that excessive borrowing by the White House could disrupt the $28 trillion U.S. Treasury market and lead to broader chaos in government bonds.

Moreover, if the USA enters a recession, the possibility of an international market rebound is usually low. Barclays Private Bank's Chief Market Strategist Julien Lafargue stated, "If (the US) stock market falls, investors will find it hard to find a safe haven."

After experiencing similar gains last year, the S&P 500 Index has increased by 24% this year, marking the strongest two-year gain since 1998. The stock price of AI chip maker NVIDIA (NVDA.US) rose by 178% in 2024, while Tesla (TSLA.US) saw a 68% increase, and investor exposure to the US stock market reached a record high in December.

According to Schroders, the so-called "magnificent seven" American tech giants account for about one-fifth of the MSCI Global Index's total market capitalization, and if their earnings or AI technology prospects disappoint, it will elevate market threat levels.

The dollar is also strong.

The euro has fallen against the dollar by about 5.7% this year, and European stock markets have performed the worst against US markets in at least 25 years. After four interest rate cuts by the European Central Bank, the Eurozone's economic decline has slowed, and some forecasters expect the European economy to rebound in 2025.

Secondly, concerns over US tariffs and a stronger dollar severely impact Emerging Markets currencies, exacerbating their struggles. The currencies of Egypt and Nigeria have depreciated against the dollar by about 70%, and the Brazilian real has devalued by more than 27% due to heightened concerns over government debt and spending.

A few moderate annual currency appreciations include a 2.8% rise in the Malaysian ringgit. Among the best-performing currencies, the South African rand and the Hong Kong dollar increased by 2% and 0.5%, respectively, while the Israeli shekel is expected to depreciate by 1.5% this year.

Arif Joshi, Co-Head of Emerging Markets Debt at Lazard Asset Management, said, "We continue to hold a cautious view on Emerging Market currencies, mainly due to Trump's trade war."

As major central banks around the world strive to find alternative reserves and reduce their dependence on dollar assets, Gold rose by 26% in 2024.

Bonds bulls were frustrated.

This year, interest rates in major economies have decreased, but bond investors suffered annual losses as they had to digest the more enduring inflation and the eventual implementation of more monetary easing policies by major central banks throughout much of 2024.

U.S. 10-Year Treasury Notes Yield increased by nearly 70 basis points in 2024, the UK 10-Year Treasury Notes Yield jumped by 107 basis points, and the German 10-Year Treasury Notes Yield rose by 33 basis points. In Japan, as inflation accelerated, the country's interest rates were raised twice this year, with Japan 10-Year Treasury Notes Yield up 47 basis points, marking the largest annual increase since 2003.

The bond market will face challenges next year, and there is uncertainty about how Trump's policies will affect the Federal Reserve. Last month's debt crisis in France also indicated that so-called bond obligation officers are ready to penalize governments that over-borrow.

Surprising winners.

Bond investors' returns in 2024 came from some of the highest-risk markets. As investors anticipated the Middle East conflict would weaken the armed group Hezbollah, Lebanon's defaulted dollar bonds had an annual return rate of about 100%. An ambitious reform plan and the prospect of Trump returning to the White House drove dollar bonds issued by Argentina to a 100% return, with Argentine leader Javier Milei closely associated with the elected U.S. president. Encouraged by the bet that Trump might end the Russia-Ukraine war, Ukrainian bonds returned over 60%.

编辑/jayden