Photo: flickr / Pernilla Rydmark
There were undoubtedly a few major stories that dominated financial markets in 2012.The formation of a recovery in U.S. housing is definitely one of them. Another is ECB President Mario Draghi’s proclamations to “do whatever it takes the save the euro,” which has calmed markets plagued in recent years by the eurozone sovereign debt crisis.
While housing and Draghi were major factors for investors in 2012, they weren’t the only developments that drove returns in financial markets this year.
YTD return: 51.6 per cent (as of December 6)
Story: The story of the year in financial markets has arguably been the 'Draghi effect.' When ECB President Mario Draghi declared in July that the ECB would 'do whatever it takes to save the euro' and subsequently followed through with the introduction of the central bank's OMT bond market intervention program a month later, yields on sovereign debt dropped precipitously.
Business Insider called the drop in Italian bond yields the 'Most Important Chart of 2012,' given that economy's significance in the euro crisis. However, Portuguese debt, though out of the spotlight, ultimately performed much better than Italian or Spanish bonds in 2012.
Source: BofA Merrill Lynch, Business Insider
YTD return: 11.1 per cent
Story: The forint had a rough year in 2011 after Hungarian Prime Minister Viktor Orban nationalized pension funds and forced the country's banks to take writedowns on loans, triggering a credit rating downgrade.
However, the forint made a big comeback in 2012 as major world central banks launched new monetary easing programs and investors extended further into riskier assets in search of yield, which Hungarian bonds could provide.
YTD return: 48.4 per cent
Story: Lumber futures staged an incredible run beginning in early October. Citi strategist Tobias Levkovich cited Hurricane Sandy, which hit the Eastern seaboard of the United States in late October, as partly responsible for soaring demand for the commodity.
Deutsche Bank commodity analysts note that prices were undoubtedly helped by the burgeoning United States housing recovery that took off in mid-2012.
Source: FINVIZ.com, Citi, Deutsche Bank
YTD return: 34.8 per cent
Story: Soybean meal has been on a tear in 2012 as weak production in Argentina, a major exporter, has caused supply to lag demand.
Morgan Stanley commodity analysts wrote in a recent note that the trend should continue into 2013: 'Without additional South American soybean acreage, trend global demand growth of 4% would pull western hemisphere soybean stocks to their lowest in four years.
We believe this necessitates greater soybean production, and prices will need to remain strong in the back of the curve.'
Source: Barchart.com, Morgan Stanley
YTD return: 297.7 per cent
Story: Venezuelan stocks were up huge this year as Venezuela held a presidential election and Hugo Chavez's health deteriorated significantly as his cancer worsened. A combination of high inflation and a big boost in fiscal stimulus in the run-up to the election juiced equities. Before the election, investors bid up stocks in hopes that Chavez would not be re-elected. After the election, investors continued to buy on hopes that Chavez's cancer would force him to step aside, ushering in a new political era in Venezuela that might see the country transition away from the socialist policies of the current government.
YTD return: 32.8 per cent
Story: Consumer cyclicals led the charge higher in 2012 as the global economic recovery began to take shape. The best performing stocks in the sector include Galaxy Entertainment Group (+114.6%), a casino operator in Macau; Prada SpA (+98.9%), the global luxury retailer; tire manufacturer Continental AG (+86.3%); and Inditex, the world's largest fashion group (+73.0%).
YTD return: 191.5 per cent
Story: IPOs have typically not turned out to be great investment opportunities in recent years. A number of high-profile IPOs in the social media sphere, for example -- including the likes of Facebook and Groupon -- have turned out to be major disappointments as shares languish significantly below their initial offer prices. Vipshop Holdings, which debuted on the NYSE on March 23, is definitely not one of those. The company, which operates an online discount retailer offering popular brands to the Chinese consumer, has seen its shares soar this year after really taking off in August, making it the best IPO performer with at least $100M in market capitalisation in 2012.
Source: IPO Monitor
YTD return: 189.7 per cent
Story: The beginning of a recovery in U.S. housing was one of the major stories of 2012. Homebuilder stocks staged a massive rally as housing data improved throughout the year. PulteGroup, the Bloomfield Hills, MI homebuilder, led the way, registering the biggest gains of any stock on the S&P 500 in 2012 and growing to just over $7 billion in market capitalisation.
YTD return: 104.2 per cent
Story: Bank of America has significantly underperformed against its peers since the financial crisis as the country's second largest mortgage lender became a poster child for industry balance sheets weighed down by toxic mortgage-backed securities. In 2012, it gained back significant ground as the U.S. housing recovery took shape and its quarterly earnings reports were largely well-received by the market.
YTD return: 671.1 per cent
Story: IMPAC, an Irvine, CA-based mortgage lender and servicer, was the best performing stock with at least $100M in market capitalisation on the NASDAQ this year. California was hit especially hard by the subprime mortgage crisis of 2007-2008, and the rebound in that market this year undoubtedly helped this small company to surge past bigger companies like PulteGroup and Bank of America.
YTD return: 159.0 per cent
Story: The VIX plummeted over the summer as central bankers took action to quell market volatility stemming from uncertainty over future policy and the state of the economy. Meanwhile, investors bought into the VXX ETF at record rates, and some think that helped contribute to the depressed pricing of the VIX due to fund flow mechanics.
YTD return: 35.4 per cent
Story: The Chou Income Fund plummeted near mid-year after announcing a big dividend. Since then, it's rebounded quite quickly. Its biggest holdings include credits from MannKind Corporation; McMinn County, Tennessee; Compucredit Holdings; and Radioshack.
YTD return: 78.1 per cent
Story: This telecoms mutual fund benefitted from significant share price appreciation in its three largest holdings this year: Crown Castle International (+59.0%), Sprint Nextel (+133.3%), and SBA Communications (+65.0%).