The Investor View
As highlighted earlier in the report , the majority of investors are optimistic for what 2022 will bring , with 55 % of respondents either “ positive ” or “ very positive ” on the outlook for the next 12 months , while 38 % are “ neutral ” and just 7 % are “ negative ”. In response , ETF Stream asked three investors to further detail how they see markets developing in 2022 .
2022 is shaping up to be a year of recovery . Omicron hit a better-prepared , highly-vaccinated population and we have seen the impact of that preparation in the economic data ; confidence and consumption have fared better than during previous variant spikes and retail has held up beyond just ecommerce .
Looking at more structural markers , solid wage growth is bolstering disposable income for consumers . Of course , the threat of inflation looms
2022 is shaping up to be a year of recovery
around the cost of living , and central banks ( like the Bank of England and the Fed ) will raise rates only if the economy can be demonstrated to be strong enough to withstand strategic rate rises . 2022 should bring a global recovery from the pandemic and the UK is in a good position to ride the wave .
Investment Director Close Brothers Asset Management
Calendar year predictions are notoriously difficult , which is part of the reason we are focused on the longer term . Valuations in traditional asset classes are not attractive ( with some nuance between regions ), though this has not been a particularly useful stand-alone signal over a 12-month horizon .
Within equities , increasing concentration in cap weighted indices has been a growing risk to monitor and manage . Though there is some evidence that the diversification benefit of government bonds is reduced in the current environment , there is still a net benefit to holding them in lower risk portfolios . Mainstream macro concerns such as rising inflation are often priced in , and unknown unknowns are by their nature shocks which cannot be forecasted . Hence , as with the majority of years , our outlook is neutral .
Head of Multi-Asset Credo Wealth
This year could be challenging for markets , with a number of potential headwinds on the horizon . Inflation is a hot topic , cropping up in a lot of conversations , as the thought begins to take hold that it may not be transient but may indeed be sticky . The spectre of stagflation cannot be ignored , so it will be interesting to see how markets , economies and savers digest it .
Aside from inflation , geo-political factors could also upset the apple cart . With citizens from many countries fatigued
The spectre of stagflation cannot be ignored with the pandemic and the authoritarian response to it , we have seen large protests in many countries over the last 12 months . This could come to a ahead during 2022 elections across Europe .
Despite this , we still have stocks at all-time-high valuations . If we do emerge from the worst of the pandemic and energy prices back off , these valuations could be correct . However ,
central bank policy remains firmly at the easy end of the spectrum .
Central banks are trying to send hawkish signals while keeping things supportive at the same time . However , the market knows that they are backed into a corner , with limited options and no track record of grasping what will prove to be a very painful nettle , if they do indeed want to cool the exuberance . One of either ( or perhaps both ) the stock market or the bond market is priced very incorrectly given the circumstances we are in , and 2022 could be the year that things get reconciled .
Senior Research Analyst AJ Bell
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