How did different asset classes perform in the first half of 2021?

Most global stock markets have soared while cryptocurrencies, gold and bonds have trailed

The Covid-19 pandemic is far from over, but 2021 has been a surprisingly good year for investors, continuing last year's recovery.

Trillions of dollars’ worth of global stimulus measures and hopes of a post-lockdown spending spree have powered share prices to new highs, with the US stock market continuing its seemingly endless bull run.

Pretty much every global stock market has benefited, but other asset classes have trailed, notably cryptocurrencies, gold and bonds.

The US

The US stock market led the world for more than a decade and its run of form continued this year. The S&P 500 index of top stocks returned 336 per cent over the past decade and another 14 per cent in the first six months of 2021.

Last summer, iPhone maker Apple became the world’s first $2 trillion company and in June, Microsoft joined it. Amazon isn’t far away at $1.85tn, while Google owner Alphabet is valued at $1.71tn. Facebook has just joined Club Trillion.

The fireworks could continue, Darius McDermott, managing director of FundCalibre, says. “By value, the US market represents about half of all quoted companies in the world and they are among the most dynamic and innovative.”

If President Joe Biden’s $1tn infrastructure spending bill is passed, the country will spend a further $1tn (£730 billion) upgrading roads, bridges, rail networks, water pipes and broadband, turbo-charging growth.

The only time they [valuations] have been more expensive was at the height of the dotcom bubble
Jason Hollands, managing director of Bestinvest

One worry is that valuations are expensive, says Jason Hollands, managing director of investment platform Bestinvest. “The only time they have been more expensive was at the height of the dotcom bubble.”

Inflation is another concern, as consumer price growth hit 5 per cent in the year to May and is expected to climb higher, which could force the US Federal Reserve to hike interest rates to stop the economy overheating.

Investors ignore the US market at their peril, Mr Hollands says.

“US-listed companies make up 58 per cent of the MSCI AC World Index, with second-placed Japan at just 6 per cent, China third with 4.9 per cent and the UK is fourth at 3.9 per cent,” he adds.

Outlook: The US remains the one to beat but don’t get carried away as it looks pricey and rival stock markets may start to play catch up.

The UK

After more than five years in the doldrums, largely due to Brexit uncertainty, the UK is starting to play catch up.

The FTSE 100 index of top UK blue chips is up 10.9 per cent so far this year, despite a fraught relationship with the EU, and the fast-spreading Covid-19 Delta variant.

Yet, the country has been buoyed by its vaccine success, with more than 45.4 million receiving at least one jab.

Overseas investors have taken note and are tempted by bargain valuations after years of underperformance.

“While the S&P 500 trades at 21.2 times forecast company earnings for the next year, UK companies are notably cheaper at just 13.7 times forecast earnings,” Mr Hollands says.

By value, the US market represents about half of all quoted companies in the world
Darius McDermott, managing director of FundCalibre

Cash-rich overseas bargain hunters are lining up to put in competing bids for under-priced UK companies, led by US equity funds.

The country’s fourth biggest supermarket chain Morrisons attracted bids from three US private equity funds. Mining, healthcare and consumer goods companies are also top targets.

Foreign investors now own two-thirds of UK-listed shares, according to research from Orient Capital, with US, European and Chinese multinationals leading the charge.

Smaller UK companies have done even better than the blue chips, with the FTSE Small Cap index up 19.4 per cent so far this year.

Outlook: Brexit may not have been a roaring success but it hasn’t been an outright disaster either. At least the argument is largely settled and that allows investors to focus on the financial rather than political issues. The UK is cheap. Let’s hope the Covid-19 Delta variant doesn’t plunge it back into lockdown.


Europe may have its political and economic worries, but its stock market continues to defy the sceptics.

The MSCI Europe (excluding the UK) index is up an impressive 12.3 per cent so far this year, and Ben Ritchie, head of European equities at Aberdeen Standard Investments, says there could be more to come.

“European companies are well positioned to lead in green technologies, have exposure to fast-growing emerging markets and great intellectual property built up over decades,” he says.

Europe is a leader in consumer brands, pharmaceuticals, luxury and industrial technology, according to Mr Ritchie.

Economic prospects and liquidity conditions are better than elsewhere [in Europe], while equity valuations are reasonable
Luca Paolini, chief strategist at Pictet Asset Management

The danger is that it may struggle to repeat its strong first half. “Expectations for earnings and economic growth are also high,” he adds.

Favouring Europe, Luca Paolini, chief strategist at Pictet Asset Management, says: “Economic prospects and liquidity conditions are better than elsewhere, while equity valuations are reasonable.”

Outlook: The European market has shrugged off Brexit and euro concerns to reward shareholders yet again. Not to be underrated.

Emerging Asia and China

Emerging Asian markets have underperformed this year, with the MSCI AC Asia Pacific (excluding Japan) up a modest 5.7 per cent, but Mr Paolini says the region remains attractive.

“It is forecast to grow at twice the rate of the rest of the world over the next five years, with a lower inflation rate,” he says.

Asia's relatively conservative monetary and fiscal response to the Covid-19 crisis means that economies in the region have more policy headroom, he adds.

Many investors are underexposed to Asia, despite its improving growth prospects, low inflation, commitment to reform and an increasingly diversified economy.

Investors can ill afford to ignore this part of the world, Mr Paolini says.

“We expect emerging Asian equities to be the best-performing asset class over the next five years, with returns averaging around 11 per cent a year. Vietnam and India should do particularly well,” he estimates.

Outlook: Asia still looks like a strong long-term bet. Make sure you have some exposure in your portfolio.


Gold has lost its shine in 2021. It started the year trading at $1,930, below its all-time high of $2,084, hit last August. Today, it stands at $1,805, a drop of 6.5 per cent.

The global economic recovery hit demand for the safe haven, Laith Khalaf, financial analyst at AJ Bell, says.

“Inflation fears haven’t helped, as higher interest rates will increase savings rates and bond yields, while gold does not pay any interest,” Mr Bell says.

This might offer a buying opportunity as gold now looks “massively undervalued”, according to Fawad Razaqzada, a market analyst with ThinkMarkets. “Also, the precious metal historically does well during the third quarter.”

Outlook: Gold may regain some of its lost lustre, but investors may need to be patient.

Bitcoin and cryptocurrencies

It’s been another crazy year for cryptocurrencies. Bitcoin started 2021 trading at $29,388, more than doubled to $63,588 in mid-April then crashed by half. At the time of writing, it is hovering around $33,000, squeezed by a Chinese clampdown and the unpredictability of Elon Musk’s Twitter output.

Bitcoin also harbours two dirty secrets. Mining the alt-coin now uses a similar amount of electrical power to Argentina or the Netherlands, worsening climate change, while criminals use it to hide their ill-gotten gains or hold companies to ransom.

Crypto is at a crossroads, Mr Razaqzada says. “The longer we go without the price hitting $40,000, the more likely support will crumble and give way to a sharp move towards $20,000.”

The longer we go without the price hitting $40,000, the more likely support will crumble and give way to a sharp move towards $20,000
Fawad Razaqzada, a market analyst with ThinkMarkets

Outlook: Nobody knows where Bitcoin and its alt-coin buddies will go next. Only invest if you have money to lose.


Bond yields were supposed to soar this year as investors demanded a higher rate of return to offset the threat from rising inflation.

Yet at the time of writing, 10-year US Treasury bonds yield just 1.34 per cent. In the UK, 10-year gilts offer just 0.7 per cent.

Bonds offer portfolio diversification, but it’s hard to be positive given today’s low yields and a global economy that looks like it’s beginning to take off, Mr Khalaf says.

“Inflationary fears have not yet really taken root, keeping yields down,” he adds.

China’s government bonds offer the best return/risk profile, while emerging Asia’s investment grade corporate bonds also look attractive, Mr Paolini says.

Outlook: Inflation remains a concern, but the great bond market sell-off has been averted for yet another year.

Updated: July 12th 2021, 5:00 AM