A Year of Transition?
The outbreak of the latest coronavirus mutation, the Omicron variant, just before the Christmas holiday period has echoes of 2020 about it, with travel restrictions and lockdowns back in place once again. Vaccine solutions were the key to the economic recovery in 2021, and it appears likely that these or 'booster' shots are likely to play a key role again in 2022.
Most commentators think 2022 is likely to be a year of transition, as vaccine take-up increases across developing countries and developed economies revert to more normal growth patterns. Central banks seem likely to begin to turn the interest rate cycle, as inflation and supply chain pressures persist, while taper programmes may see liquidity diminished. Similar investment themes seem likely to dominate 2022 as they did in 2021.
NN IP‘s Outlook paper for 2022 identifies three key trends investors should be aware of. These are the search for alternative sources of return, an accelerating shift towards a more sustainable economy, and how economies eventually recover from the Covid-19 crisis.
For compliance reasons, this paper is only accessible in certain geographies
Invesco expects 2022 to be a transitional year as policies and economies progress to a state of normalisation post Covid-19. Continuing supply chain disruption may see inflation persist for longer than anticipated. How markets and policymakers respond to inflation will be key.
How Vulnerable Is Emerging Market Debt to Fed Tapering in 2022? (Franklin Templeton Investments, Dec 2021)
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Franklin Templeton assesses the prospects for emerging market debt in 2022, which they think is in a stronger position to withstand any re-run of the Fed induced ‘taper tantrum’ that occurred in 2013.
In their 2022 Outlook podcast, PineBridge Investments examines the prospects for asset markets and how growth and recovery might pan out. They expect ESG to be ‘top of mind’ for investors for much of the year.
Northern Trust AM explores the prospects for the U.S. municipal bond market in 2022. In their view, states appeared to manage finances well during 2021, meeting both spending and debt obligations. This supports what looks to be a stable credit environment as a backdrop for the Munis in the coming year.
BNP Paribas AM highlight that inflation looks to be far from transitory, driven by continuing supply-chain disruptions and ongoing labour shortages. They suggest that ‘tight’ market conditions could see inflation ‘higher for longer’ with consequent impacts on inflation expectations and responses from policymakers.
DWS introduces their full-year strategic forecasts for 2022 in this paper, while also providing a review of the year just gone.
UBS AM’s Real Estate Outlook sees inflation dominating proceedings and, in some regions, ultra-low property yields means that yield compression, driven by falling rates, will become increasingly scarce as central banks begin to turn the rate cycle. Going forward, it appears increasingly likely that investors may have to ‘work’ portfolios to create value from their real estate investments.
In this Asian Multi-Asset Outlook piece, PineBridge Investments sees opportunities for investors across asset classes as Asian economies reopen. The responses of Asian central banks to inflation will be key; within equities they think Japan looks attractive as a global cyclical and is likely to benefit from the easing of supply chain issues, particularly to the automotive sector. Within credit markets, local currency fixed income looks attractive.
This M&A Outlook survey from CMS finds participants in more positive mood; corporates have built cash during the pandemic and there are record levels of dry powder among PE firms. Distressed-driven M&A is seen as a prime sector for both buy- and sell-sides, with PE firms being more likely to deploy cash, given often limited timeframes in which to act.
This OECD paper incorporates recent updates to their 'Long Game' paper, last published in 2018. Long-term trend real GDP is seen falling from around 3% post-Covid, to around 1.5% in 2060, due to a deceleration in large emerging economies growth.