Monthly House View - January 2022 - Download here
As we close out 2021, a year of strong performances and many surprises, we turn our attention to what 2022 may have in store for us.
A year of normalisation. First, because we expect the inflation rate to gradually return to more normal levels, which will take longer than expected; second, because supply chains should start to run more smoothly again; and, lastly, because economic policy should return to a more neutral stance, with an end to “whatever it takes” and monetary support.
A year of moderation. This means more modest growth outlooks and earnings growth expectations more consistent with long-term averages. The economy and the financial markets are changing gears, shifting from a rapid recovery (in which all asset classes perform well) to a more traditional trajectory, in which the decorrelation between equities and bonds is expected to increase, as we first saw at the beginning of 2021.
A year of diversification. One of the risks often raised on the US market is the high concentration in a smaller number of stocks, a manifestation of the “winner takes all” syndrome in the market indices. Some of these actors hit their peaks several quarters ago, and this year the Chinese stock markets showed us that buying the largest capitalisations in the index blind is not necessarily the best option (particularly when fundamentals are no longer what they should be). Informed investors will therefore be able to appropriately spread their risks and actively manage them.
While there is still time for us to make our wishes for next year, after a year of very positive market performances, we can only hope that the central banks will be able to navigate their way through this transitory environment without any major communication errors. In many ways, it looks like we will be walking a tightrope between inflationary pressures and risks to growth in 2022. Let us hope, then, that 2022 does not bring disappointment and disillusionment!
Monthly House View, 17/12/2021 release - Excerpt of the Editorial
December 22, 2021