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2022 Global Market Outlook

2021 was a year of rebound and recovery, and we expect that 2022, by contrast, will be a year of Moderation – particularly when it comes to growth, inflation and investment returns.  Developed economies have spare capacity, households are sitting on accumulated savings from thepandemic lockdown and central banks are planning to remove accommodation only gradually.

Overall, the global economy appears poised for a second year of above-trend growth, but at a slower pace than in 2021. In our view, the three main uncertainties for 2022 are:

  • The durability of the spike in inflation;
  • The extent and duration of the property-market-driven slowdown in China; and,
  • Possible further COVID-19 lockdowns as infection rates increase again or new variants emerge.

We expect the spike in inflation will be mostly transitory, although it could reach uncomfortably high levels in early 2022 before declining as supply-chain restriction issues are gradually resolved. We also think that while Chinese authorities are likely to implement stimulus measures to soften the nation’s property slump, the response may be too late and too small to prevent a deeper downturn. Regarding COVID-19 risks, while the success of vaccines and approval of pills to treat infections has made investors more relaxed, the new Omicron variant demonstrates that these risks can quickly return.

While risk factors abound as they always do, overall we remain positive on the outlook for equities, especially domestic equities, as we see a continuation of the strong domestic consumption theme.  We expect earnings of those companies most exposed to the favourable business cycle to perform best.

For a deeper recap of the year and a more detailed outlook for the next 12 months, our friends at Colonial First State have written a comprehensive article at:

https://www.cfs.com.au/adviser/investments/news-updates/market-updates/2021-review-2022-preview.html?edm=Investments-invnewsletter-concep-20211201-year

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