As we approach the end of 2023, and what an eventful year it was for stocks worldwide, especially for Wall Street, it is important to take a look back, in this Tips for Traders edition, to understand global markets and how they shifted in this most astonishing year for equities and bonds.
With insights from Bloomberg’s articles, we tried to construct an overview of the top 11 big trades that went down in 2023.
Notably, the stock market witnessed some astonishing movements, especially in the last quarter. with certain trades standing out significantly. This "Tips for Traders" article delves into Bloomberg’s analysis of the top 11 big trades of the year.
1. Tips for Traders: AI and the Tech Stocks
The recent AI rally, with multiple leading AI companies pushing for localization, led to a dramatic increase in tech stocks, Major players like Microsoft and Nvidia Corp contributed to 65 percent of the S&P 500’s rally, with both having invested heavy in AI-centric industries.
Hedge funds missed this early in the year but later adjusted, highlighting the importance of staying adaptive to emerging tech trends for traders.
2. Tips for Traders: Bill Ackman's Successful Bond Strategy
Bill Ackman’s strategic bet against US 30-year bonds in August, just before yields soared to a 16-year high, exemplifies the importance of effective timing. Ability to read the market and predict shifts and movements is largely rooted in understanding of market and industry dynamics.
Tips for Traders: Overview of Bloomberg’s Top 11 Big Trades of 2023 - Shutterstock
His approach resulted in a 16 percent net gain for his fund, demonstrating the value of insightful market predictions.
3. Tips for Traders: JPMorgan’s Gain from the Decline of Regional Banks
The crisis in regional banks, contrary to expectations of benefiting from monetary tightening, led to JPMorgan Chase & Co.'s strategic acquisition of First Republic Bank. This move underscores the importance of seizing opportunities during market turmoil.
JP Moran reportedly assumed about $92 billion in deposits, including the $30 billion in bailout deposits from large banks, including the banking mammoth’s own deposits.
Similarly, other big banks moved in to profit off of the collapse of regional and small banks.
The combined domestic deposits of JPMorgan, Bank of America, Wells Fargo, and Citybank, stood at $6.1 trillion as of December 2022. Which is larger than the combined deposits of the 33 closest competitors in the US banking sector at the time.
4. Tips for Traders: Misfired Predictions in China’s Market
Goldman Sachs and Morgan Stanley’s bullish predictions on China's market backfired as the MSCI China Index fell by more than 14%. This outcome serves as a reminder to traders to critically assess expert forecasts and market sentiment.
5. Tips for Traders: India's Market Resilience
The resilience of India's market, particularly following the Hindenburg Research attack on Gautam Adani's empire, underscores the potential of emerging markets.
The attack suddenly put the billionaire’s energy-to-ports empire into a tailspin – spurring a $150 billion market loss – and raised broader fears about India’s credibility as a hot investment destination.
Months later, Adani-linked shares and bonds were on a relief rally, as Adani basked in the light of something of a redemption in markets and in the court of public opinion.
Adani’s shares benefited greatly from refinancing maneuvers that improved the group’s financial discipline, confident signals from policymakers and continued economic growth.
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Bloomberg News reported earlier this month that the value of GQG Partners LLC’s Rajiv Jain’s investments in the group rose to more than $7 billion. Among other investors with well-timed trades: Qatar Investment Authority, which bought a 2.7 percent stake in Adani Green Energy Ltd. before a spirited price rebound.
6. Tips for Traders: Japan’s Market Emergence
Japan's market showed unexpected growth, with the Topix index reaching a 33-year high. Warren Buffett's investments and bond shorting strategies in Japan paid off, highlighting the potential of overlooked markets.
Another successful trade was shorting Japanese government bonds, a formerly perilous strategy.
Investors betting on an end to the Bank of Japan’s negative interest rate policy finally received some validation when the BOJ loosened its grip on yields. That eventually sent the rate on the 10-year benchmark to an 11-year high before easing again, as monetary action proved less hawkish than expected.
Those who expected a turnaround in the yen’s weakness were wrong, as the currency once again found itself as the worst performer in Asia and among its Group-of-10 peers.
On a brighter note, 2023 will be remembered as a year when the yen carried trade — borrowing the Japanese currency cheaply to buy currencies in higher-rate regimes such as Mexico and Brazil— paid off fabulously.
7. Tips for Traders: Bitcoin’s Surprising Comeback
Bitcoin's recovery, more than doubling in value in 2023, was against all odds. This resurgence points to the unpredictability of cryptocurrency markets and the importance of monitoring regulatory and industry developments.
Bitcoin, the oldest and biggest digital currency, was nursing a loss of more than 60 percent, and the fallout from the collapse of Sam Bankman-Fried’s FTX exchange was still reverberating. Prospects for a Bitcoin revival — let alone a rally — seemed remote.
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Yet, Bitcoin has more than doubled in 2023, though it remains well below its all-time high of almost $69,000.
However, a number of regulatory decisions lie ahead, which are expected to bolster the cryptocurrency, especially with the halving event expected next year.
8. Tips for Traders: Bed Bath & Beyond’s Meme Stock Phenomenon
Bed Bath & Beyond’s situation, despite nearing bankruptcy, remained buoyed by the meme-stock movement.
It was a famous beneficiary of the pandemic-born movement that continues to send a handful of companies’ shares soaring seemingly without rhyme or reason, according to Bloomberg.
This illustrates the unpredictable nature of certain stocks driven by non-traditional market forces.
9. Tips for Traders: The Decline of ESG Investing
Major funds like BlackRock’s environmental, social, and corporate governance (ESG) ETF are experiencing record outflows. This suggests revaluation is afoot, of socially responsible investment strategies amid increasing scrutiny and market shifts.
The alliance between progressives and hard-nosed capitalists in fueling the ESG movement was never going to be easy. But this year, the ESG agenda took a big beating from all sides of the political aisle.
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The sector is raising questions from Republican lawmakers as well as watchdogs about its methodology, transparency and the potential for overstating the effectiveness of its stated goals via “greenwashing.”
The biggest casualties included a group of BlackRock exchange-traded funds (ETFs) as well as veteran hedge fund manager Jeff Ubben.
BlackRock, the world’s largest asset manager, saw more than $9 billion pulled from its biggest ESG-focused ETF, a record annual outflow. Meanwhile, Ubben abruptly closed his socially responsible investment firm Inclusive Capital Partners last month, after having dedicated efforts to raising $8 billion three years ago, for the purpose of supporting ESG investments. The fund did not achieve the target.
However, it is possible that 2024 may be the year for ESG-oriented investment strategies.
Analysts at JPMorgan Chase & Co., as reported by Bloomberg, wrote in a recent note to clients that equity strategies with an ESG tilt may well beat the broader market next year.
How so? Well, these assets offer precisely the kind of defensive strategy investors will need to navigate next year’s market cycle. The year 2024 is likely to see a slowing economy, declining bond yields, easing inflation and a strengthening US dollar.
10. Tips for Traders: Credit Suisse’s Bond Market Impact
The sudden death of Credit Suisse unexpectedly wiped out big-name holders of the firm’s riskiest bonds.
The controversial decision by the Swiss regulator to liquidate holders of $17 billion of so-called additional tier 1 securities — even while preserving some value for equity investors — left a long list of losers. They include Pimco, Invesco and wealthy clients at Mitsubishi UFJ Financial Group Inc.
The liquidation of Credit Suisse's AT1 securities and subsequent profitable trades by firms like GoldenTree Asset Management and Marathon Asset Management highlight the importance of quick, strategic decision-making in response to market crises.
Meanwhile, GoldenTree Asset Management bought roughly $300 million of AT1 bonds at knockdown prices for a cool $100 million profit and Marathon Asset Management LP bought $150 million of those bonds for a quick $30 million return.
Tips for Traders: Overview of Bloomberg’s Top 11 Big Trades of 2023 - Shutterstock
These were fast-money trades that won big by picking over the corpse of Credit Suisse, by scooping up the bank's senior debt, which was changing hands at deep discounts in the days before liquidation.
11. Tips for Traders: Discos’ Unexpected Returns
The high returns from obscure “discos” bank bonds, issued in the 1980s, indicate that overlooked or undervalued assets can sometimes yield significant returns, emphasizing the need for broad market knowledge and diversified investment strategies.
Discos are US dollar bank bonds issued almost four decades ago, and they delivered a windfall this year for investors, generating returns exceeding 50 percent in some cases.
Holders including James Carter, portfolio manager at Waverton Investment Management, made a fortune off of those.
Overall, the trading landscape of 2023 presented a variety of challenges and opportunities. From the rapid rise of AI tech stocks to the unpredictability of global markets like China and Japan, and the surprising resilience of Bitcoin, the above Tips for Traders provide valuable lessons in adaptability, market analysis, and strategic investment. As traders look forward to future market conditions, these insights can help in making more informed and profitable decisions.
