Key market issues in 2022
The numbers are almost incomprehensible. According to data from the Bank of America, since the beginning of the pandemic, central banks have injected US$32 trillion into the global market, which is equivalent to buying US$800 million in financial assets per hour over the past 20 months. The global stock market value has soared by USD 60 trillion.
But inflation has risen and is eager to control prices. The Fed announced last week Asset purchase will end in March, The interest rate may be raised three times next year.
In this context, these are the major issues raised by banks and investors for 2022.
Inflation: If it is not temporary, what is it?
The Central Bank made a U-turn on inflation in 2021, shifting from guaranteeing that it would be a “temporary” reflection of the post-blockade rebound to accepting it as a more permanent one. In November, the U.S. Consumer Price Index climbed to The fastest speed since 1982, Prices in the Eurozone rose 4.9% to a record high, and the UK data jumped to a 10-year high.
However, many banks and investors expect a fall.
Morgan Stanley predicts that although prices may remain high next year, as oil prices fall and supply chain problems ease, the rate of price increases will peak in early 2022.
Columbia Threadneedle also cited “improvement in the supply chain” as an important reason why it believes that inflation will “eventually decline” in 2022. The Fed starts to push up interest rates It’s like a fall in inflation.
But BlackRock, the world’s largest asset management company, predicts that inflation will continue to rise “in the coming years.”
Goldman Sachs predicts that by next year, core consumer prices in the United States will remain above 4%. It said that the willingness of central banks to tolerate higher inflation will keep inflation-adjusted bond yields relatively low, which should also provide support for the stock market.
It expects that the global stock market will achieve positive returns for the second consecutive year, while government bonds will experience negative returns, the first such combination in half a century.
The central bank has already begun to turn off the taps, or at least indicate that they will do so next year. Investors worry that they will eventually suppress it too harshly.
Deutsche Bank’s chief economist David Fuchtz-Landau said that if inflation fails to ease, the central bank will shift to a “more aggressive monetary tightening stance, leading to severe negative reactions in financial markets, and most likely a serious economic situation. decline”.
UBS stated that central bank policy errors are “one of the main risks facing investors and the global economy in 2022”. Bank of America added that the market “is transitioning from a period when central banks are trying to predict and curb volatility to a period when they will increasingly become a source of surprises.”
Will the U.S. stock market continue to rise?
JPMorgan Chase’s Global and European Equity Strategy Director Mislav Mat Ika said: “Customers told us that market momentum has peaked, earnings have peaked, liquidity has peaked, the central bank will tighten, and you should take profits. “We disagree with this.”
Goldman Sachs expects that by the end of 2022, the Standard & Poor’s 500 Index will rise further by 9%.
However, some people worry that the rise of stocks, especially in the frothy corners of the market, is unsustainable.
Morgan Stanley said its basic scenario is that the Standard & Poor’s Index fell 5%. Bank of America also predicts that the economic slowdown and rising interest rates will drag the major US stock indexes down by 3%.
What is the outlook for Europe?
Frederik Ducrozet, senior strategist at Pictet Wealth Management, said that the European Central Bank faces a “difficult and turbulent” environment as it enters next year’s prices.
“The overall outlook is not only one of permanent high inflation, but also one of permanent high inflation volatility,” he said.
The European Central Bank last week promised to reduce its bond purchase program during the pandemic in response to price increases, while reiterating that interest rate hikes will have to wait until 2023.
According to data compiled by Bloomberg, the market generally expects the Stoxx 600 Index to rise by 6% because the economy continues to grow and bond yields remain low. However, Bank of America expects these trends to reverse in 2022, with the Stoxx Index falling by 10%.
Ben Ritchie, head of European equities at Edinburgh-based asset management company Abrdn, said investors should focus on companies with strong competitive positions, pricing power, and structural growth drivers.
Although valuation multiples in European stock markets are a challenge, Rich said that the healthcare, consumer products and financial industries provide “a lot of opportunities.”
However, Pimco predicts that European stock markets will face “greater challenges” due to unfavorable industry composition, energy price headwinds, and growing unease about the outlook for Covid-19.
Nomura foreign exchange strategist Jordan Rochester said that upward pressure on energy, food and service prices will mean that headline inflation in Europe next year will remain uncomfortably high.
He pointed out that the price of natural gas in Europe has risen by about 577% this year, reflecting concerns that Germany’s winter supply may be insufficient. The increase in the cost of natural gas has pushed up fertilizer prices, which are highly correlated with food prices. Rochester said consumers may respond to these developments and demand higher wages.
Watch out for the French presidential election in April.
What is the next step for China and emerging markets?
“Emerging markets have had a very bad year and there will be more ugly headlines… Part of the reason is [China’s] Chris Jeffery, LGIM’s multi-asset manager and head of interest rates and inflation, said that the zero Covid policy will be difficult to maintain, especially in the case of Omicron.
After Beijing’s policymakers imposed new restrictions on technology, education, and real estate companies, China’s CSI 300 Index fell by 3% this year.
At the same time, Claudia Calich, Head of Emerging Market Bonds at M&G Investments, said that the problems of the Chinese real estate industry remind people of the dangers and vulnerabilities that may be lurking in the Asian corporate bond market. It has received increasing attention from international investors.
Kalic added that if the severity of the virus proves to be more severe than expected, investors should prepare for “significant downside risks” in emerging markets, especially in countries where many populations are still unvaccinated.