A Year of Excessive Risk
Hope you’re having an excellent year so far. Most of the stock markets are closed today and the commodities and currencies are still in low liquidity mode.
It’s always fun to see the New Years speeches from all the different global leaders. I believe the most on point this year was Germany’s Acting Chancellor Angela Merkel who has called direct attention to the growing divide in her country between the rich and the poor.
Despite Merkel’s promise to form a “stable” government quickly, the parliament there does remain in a firm deadlock. A fact that must have many German citizens on edge at the moment.
Likely the biggest political event on the horizon will be the parliamentary elections in Italy, which are due on March 4th. The government has been unable to progress there for quite some time, but the elections are around the corner actually brings new hope.
If by some miracle Italy is able to see stability before Germany, then dear Angie’s days in the political spotlight will indeed be numbered.
eToro, Senior Market Analyst
A Year In Review – 2017
Please note: All data, figures & graphs are valid as of January 1st. All trading carries risk. Only risk capital you’re prepared to lose.
Massive Appetite For Risk
2017 was a stellar year for risk assets. The monstrous amounts of cash created by the central banks over the last decade has indeed been finding homes in many different places.
It seems that the riskier the asset, the more money flowed towards it.
Let’s start off with the bond markets, which are one of the lowest risk assets that can be traded globally.
Here we can see that the 10 years US Treasuries (white) rose about 5.7% over the course of the year, whereas the Emerging Market Bonds (green), which are a bit more risk rose by 7.9%.
The global stock indices tell a slightly different story with gains ranging from 5% in Australia’s ASX to 30% in the Dow Jones. Draw your own conclusions.
Record Breaking Volatility
2017 was also a year of record low volatility in the stock markets.The VIX volatility index showed an average reading of 11.1, which is not only a record low, it’s 10% lower than the next lowest year since the index was created.
Not bad for a year that was marked by extreme political risk in the United States, United Kingdom, and North Korea.
All this propensity to risk has taken its toll on one of the markets favorite safe havens, the US Dollar, which booked it’s worst year since 2003.
However, the most traditional gauge of risk sentiment, a certain shiny yellow metal, managed to attract a lot of that newly created central bank money and has put on its best performance since 2010.
Of course, if we zoom out and include data since before Trump’s election we can actually see that Gold has more or less just held its value against the US Dollar over the past 14 months.
The most telltale sign of this excessive risk and by far the biggest hallmark of the year 2017 was the massive movement to crypto-assets.
This new asset class has probably seen the quickest rise in value and market capitalization of any asset class in any year in history. The total value of all cryptocurrencies in circulation has risen by 3137% from January 1st to December 31st.
The amazing thing is that the rate of acceleration has continued to increase as the year progressed. Even the massive pullback that we saw in the week leading up to Christmas seems like a tiny blip when we look at the big picture.