This market update will be our last report for 2021.
It’s safe to say that it’s been a tumultuous year, marked by lockdowns up and down the eastern seaboard of Australia, and a mass vaccination rollout across the country as the nation tries to get on top of the still evolving COVID-19 pandemic.
Despite the challenges posed by COVID, which sadly look like they will continue well into next year, it’s been a far more positive story in investment markets, with most assets seeing strong price growth.
Pink diamonds were at the forefront of this growth, with our very own Australian Diamond Portfolio Pink Diamond Index highlighting the fact that on average, pink diamond prices rose by 30% in the year to end June 2021.
That strong price growth has continued in the last six months, with pink diamonds set to see years of market leading investment returns, driven by the continued increase in demand, and the almost total collapse in new supply due to the closure of the Argyle Diamond Mine.
Other markets also performed very well, though their future is far less certain, which we discuss in detail below.
The year that everything worked
With two weeks to go until the end of the year, this market update is the perfect opportunity to review how financial markets and investments have performed.
Starting with the great Australian dream, it’s been an incredible year for real estate, with property prices soaring across the nation.
This can be seen in the incredible table below, which shows house, unit, and dwelling price growth across the major cities in Australia in the twelve months to end November.
Australian residential real estate – price growth to end November 2021
As you can see, prices have soared, with the average house in Australia now 24% more expensive than it was twelve months ago. This is what billions of dollars of printed money, and interest rates that are 2-3% lower than inflation do in the short-term.
This price surge has been tremendous for long-term homeowners, and those who have bought in the last few years, though it also puts housing just that much further out of the reach of everyday Australians, especially younger ones trying to get a foot on the property ladder.
Equity markets have also performed strongly in 2021, with the S&P 500 in the United States and ASX 200 in Australia up 27% and 11% respectively year to date.
We’ve also seen record inflows into these markets in 2021, while investors in the US at least are now paying some of the highest prices on record for stocks at current levels.
Commodities are also up for the year, with the Bloomberg Commodities Index up 24% in 2021, driven by surging oil and energy prices which are also important factors contributing to the highest levels of inflation seen in 30 years.
Finally, we have cryptocurrency markets. Though they’ve remained as volatile as ever, and are still plagued by regulatory challenges, the failure of crypto exchanges and allegations of fraud, there can be no doubt they’ve surged across 2021 as a whole.
Bitcoin, the market darling of the crypto space, is trading near USD $50,000 a coin as we write this. While that’s down more than 30% from its all-time high seen during the year (it also suffered a 50% correction this year), it’s still up 70% in 2021 so far.
Meanwhile the total market value of all cryptocurrencies is currently sitting around USD $2.3 trillion. It started the year below USD $750 billion.
In summary – what we’ve seen this year in the markets is:
- Pink diamond prices up
- Property prices up
- Equity markets up
- Commodities up
- Cryptocurrencies up
Looking at the above, it’s fair to say that 2021 is the year that everything worked. Pretty much every asset class went up, and most by quite some margin.
Of course, while these returns are eye catching, many of these asset classes, especially property and equities are now trading at record high valuations. They are entirely reliant on either continued money printing, low interest rates, investor FOMO (fear of missing out), or a combination of all three.
Others, like crypto, are also being driven by FOMO, with many astute investors seeing that market as a modern-day Ponzi scheme. The fun may last a while longer, but most investors are likely to get burned.
Taken as a whole, there is now substantial risk in most of these markets.
They lack the robust supply/demand profile, or the long-term inflation protecting qualities that assets like pink diamonds continue to offer.
That’s worth keeping in mind as we head into next year.
See you in 2022
We’d like to thank all of you who’ve taken the time to read these updates across the course of the year. We hope you have found them useful both in terms of understanding the opportunities for growth that come with investing in pink diamonds, as well as the overview of the broader economy, and financial markets that we provide.
As a reminder, we will be closed from 23 December to 10 January, though will be checking emails intermittently over this time period.
As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and we look forward to any questions or comments you may have.