Listen to the podcast with Daniel Morris, chief market strategist, as he discusses the investment outlook and the possible course for macroeconomic policy as it seeks to tackle the social and economic challenges laid bare by the Covid. Or read the executive summary of our outlook below.
MACROECONOMICS AND MARKETS
This section highlights our views that:
• While some production constraints will remain well into 2022, they will be resolved eventually, enabling economies to revert to trend growth rates without generating higher inflation on a permanent basis.
• Substantial accumulated household savings mean consumers have the resources to go on a spending spree that could have inflationary consequences. If, however, the after-effects of living through a global pandemic inhibit consumption, central bank and state support may be needed to encourage demand.
• We expect the momentum behind rising wages to fade as employers adjust processes and invest capital to reduce their dependence on labour. Today’s relative weakness of organised labour means comparisons with the 1970s are inappropriate.
• Equities will struggle to generate above-average returns in 2022. European equities look set to make up lost ground with their US peers. One of the critical calls will be whether value stocks can begin to reverse their underperformance of the last several years. The wide valuation gap between value and growth stocks and the prospect of higher interest rates suggest upside is ahead.
• While intransigent inflation is likely to lead the US Federal Reserve to raise policy rates several times from the middle in 2022, we expect only a short cycle of increases in key rates. The upside of longer-term US Treasury bond yields should be limited by capped inflation expectations and the size of the Fed’s balance sheet keeping real yields low.
A SUSTAINABLE RECOVERY
We believe the green economic transformation can offer investors significant opportunities.
The current crisis is a reminder that we as investors must align investing with the realisation of sustainable long-term growth. Investing for the long run will be crucial, because the typical 3-5 year investment cycle does not match the lifespan of financing the shift to green hydrogen or the innovation required to achieve e-mobility, restore natural capital and build green infrastructure.
INVESTMENT THEMES FOR THE LONG RUN
Our investment themes for 2022 have both a sustainable angle – energy transition and environmental sustainability – and a focus on long-running trends including healthcare innovation and disruption via new technology.
Our regional spotlight focuses on China, the world’s fastest growing major economy, home to many innovative companies and a market that increasingly warrants a standalone allocation within multi-asset portfolios.
Download the complete PDF of the 2022 Investment Outlook by BNP Paribas Asset Management
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.