A big AI trade rescued the stock market. A niche bet on Bed Bath & Beyond sank amateur day traders. A buy-China call backfired on investing pros.
A slew of trades around the world, from bank bonds to cryptocurrencies, either blew up or rocketed higher against expectations this year.

Short-seller attacks on Adani’s empire in India took a surprising turn. Crypto diehards got a shot of redemption. So-called bubbles, like ESG, deflated. The irresistible force behind much of the action: the Federal Reserve’s disruptive monetary-tightening campaign, creating new winners and losers in its wake.

As this year’s trading draws to a close, Bloomberg chronicles the good, the bad and the ugly, as told by market reporters from New York to Singapore.

AI: Hedge funds play catch-up
The great AI rally of 2023 showered untold riches onto tech companies and their visionaries and sparked huge gains for portfolios big and small. Yet for all their shrewd bets and million-dollar bonuses, the smart money missed out in epic fashion.

Hedge funds’ exposure to technology stocks hovered near multiyear lows in January — the very moment when euphoria over artificial intelligence took off. That left managers shut out from an historically lucrative trade that they were paid to capture. By late September, they had reversed course dramatically with their tech exposure jumping to the 99th percentile of historic readings, per Goldman Sachs Group Inc. data.

Nothing has been able to stop the AI fervor. Not frothy valuations. Not the drama at Microsoft Corp.-backed OpenAI. Not even fears that the newfangled tech won’t live up to the hype. All told, the seven largest tech firms — from Microsoft to Nvidia Corp. — have been responsible for an astonishing 65% of the S&P 500’s rally this year through Wednesday.

That’s been a boon for the likes of Katam Hill LLC’s Adam Gold, who elevated Nvidia to his highest-conviction pick one year ago in the grip of the stock’s biggest drawdown in 14 years. In turn, his Deep Growth Plus fund has gained 124% this year through November. — Elena Popina

Bonds: Ackman times the swings
The “Year of the Bond” may have misfired, but billionaire Bill Ackman still profited handsomely from what turned out instead to be a year of big swings in US Treasuries. In August, the Pershing Square Capital Management founder disclosed that he was betting against US 30-year bonds, citing elevated inflation and swelling government deficits. He got it right. By late October, yields on the benchmark Treasuries shot up past 5% to a 16-year high.

Ackman, who specializes in picking individual stocks, then announced that he unwound the macro trade just as yields peaked. It helped his flagship fund return 16% this year through November on a net basis. The billionaire investor exhibited similar prowess last year when he netted more than $2 billion by betting interest rates would rise.

“Ackman did a great trade,” said Ed Yardeni, a longtime market veteran and founder of Yardeni Research. “For a short while there, he was the king of the bond vigilantes.” — Ye Xie

Regional Banks: Lenders’ loss is JPMorgan’s gain
The bank trade famously didn’t go to plan. The fastest monetary-tightening cycle in decades was supposed to juice interest income for lenders while continued economic expansion would buoy credit growth and investments. In fact, weeks before a handful of regional banks blew up, mutual funds were heavily overweight financial shares, according to Goldman Sachs.

Then the biggest tumult in the banking industry since the financial crisis left Wall Street reeling. Cue emergency actions, rescue efforts, a government intervention, a cascade of Congressional hearings and a handful of new rules for the industry.

Lifelines — like the one allowing banks to borrow from the Federal Reserve, which accepted bonds at par value as collateral — helped to contain the crisis. Meanwhile, JPMorgan Chase & Co.'s acquisition of failed lender First Republic Bank may prove to be one of Jamie Dimon's best deals in years.

The turmoil created an opportunity for Bill Nygren, who upped his stake in First Citizens Bank when the stock reeled in early March, before the news that it’s acquiring Silicon Valley Bank pushed it more than 50% higher in one day and by a similar clip in the ensuing months. Nygren’s Oakmark Select Fund gained 32% this year through November. — Elena Popina and Natalia Kniazhevich

China: The comeback that wasn’t
Almost everybody got China wrong. Goldman Sachs called for double-digit increases in both the MSCI China benchmark and the CSI 300 Index and Morgan Stanley turned overweight on Chinese stocks last December, joining prognosticators who expected the world’s second-largest economy and markets would get a lift as the government relaxed Covid-19 restrictions.

Yet the reopening revival failed to materialize. Stocks are nowhere near pre-pandemic levels, and China’s property debt crisis swallowed even more companies. As of Dec. 20, the MSCI China Index was down more than 14% for the year.

Another $71 billion was wiped out from the value of real estate stocks. Country Garden Holdings Co. — once China’s largest developer — plunged into default and China Evergrande Group struggled to avoid liquidation. Some Evergrande dollar bonds are now trading near 1 cent on the dollar, trapping investors in a bet that has seemingly lost all appeal.

Some savvy market watchers got it right. In January, Freya Beamish, chief economist and head of macro research at TS Lombard, made an out-of-consensus call: Sell China and buy US and the UK. While most had expected the Asian nation to recover from the pandemic and America to slip into a recession, she argued — correctly, as it turned out — that China would be “left high and dry on a debt mountain” while the US would benefit from a benign credit and capex cycle. — Tassia Sipahutar, Eliza Ronalds-Hannon, John Cheng and Ye Xie

India: The rally that was
“Buy India” is a popular Wall Street investment mantra these days, but back in January it was a very different story. Short-seller Hindenburg Research’s attack on Gautam Adani 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. The Supreme Court was forced to open an investigation into the famed industrialist’s projects in the world’s most populous nation, while Indian politicians quickly launched an overseas charm offensive.

Months later, Adani is enjoying something of a redemption in markets and the court of public opinion. Thanks to refinancing maneuvers that improved the group’s financial discipline, sanguine signals from policymakers and continued economic growth, Adani-linked shares and bonds are on a relief rally.

One clear winner: GQG Partners LLC’s Rajiv Jain. The emerging-market investor sank billions into the Adani group in March and again in August. Bloomberg News reported earlier this month that the value of its investments has risen to more than $7 billion. Among other investors with well-timed trades: Qatar Investment Authority, which bought a 2.7% stake in Adani Green Energy Ltd. before a spirited price rebound. — Tassia Sipahutar

Japan: Land of the rising stocks
Japan, a perennial underperformer in world markets in recent years, emerged as an investor darling. Several factors combined to help boost the nation’s profile, from an upturn in economic growth to prospects for corporate reform and optimism that central bankers may finally be ready to abandon their rock-bottom interest-rate policy. China’s malaise and an endorsement from Warren Buffett didn’t hurt, either.

The legendary investor said in April that he was considering more Japanese investments after raising his stakes in the nation’s trading houses. Buffett’s Berkshire Hathaway Inc. then said in June it had further increased its stakes in five of Japan’s trading firms. The benchmark Topix index duly rose to a 33-year high.

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