The top five things investors should look out for in 2022
I hope you all had a fantastic Christmas and New Year seeing friends, family and relaxing.
It is the time of year when investors and commentators make all sorts of predictions for the year ahead. This brings me to an excellent quote on the business of making predictions.
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
— Laurence J. Peter, Canadian writer & educator
Making predictions in general is ill advised so we don’t do that. What we do is think about factors that are impacting us today and require close monitoring. Below are our top five things to look at now which could impact investors in the year ahead.
- Inflation – it has been well above target (2%) across most economies and amazingly high in the USA hitting 25 year highs recently (see chart below) – if this does not fall back in 2022 then this spells trouble for markets because of point 2.
- Rising rates – investors expect rates to rise but if they rise quickly in a disorderly manner then this could shock markets. Why would rates rise quicker than expected? If inflation does not remain contained and start to return to more normal levels or if markets lose faith in central banks ability to control rates.
- Starting valuations – valuations are starting from an extended level on most metrics and so a valuation shock fuelled by rising rates could hurt markets.
- Politics – global political relations are stretched due to a plethora of reasons including COVID policy disagreement, climate change policy misalignment and the generally more polarised political climate. A big political blow up in any country normally has a big negative impact on that country’s market so geographical diversification is extremely important. The biggest political risks remain in China and USA.
- Complacency – in general investors are confident that central banks and politicians are in control and that whilst there are risks everything will be ok. A market where the majority are complacent can be dangerous so knowing what you own and how it will be impacted by different negative scenarios is of paramount importance.
In summary, as we enter 2022 there are a lot of issues to consider and navigating the markets is likely to be difficult this year.
We will, as always, be monitoring developments extremely closely for our clients to protect them from whatever 2022 throws at us. Diversification – not putting all your eggs in one basket – is a key part of our investment mantra and in times of uncertainty it pays dividends. One thing is always certain, things will be uncertain!
All the best for 2022!
Opinions constitute our judgement as of this date and are subject to change without warning.