International - Market Stories - Investment Ideas for H1 2022

Investment ideas for H1 2022

In the great transformation governments and the private sector must invest to address the climate crisis and social inequalities.

Central Banks’ targets (growth, labour markets) will expand to include green/social ones.

Investing in the great transformation


Central Bank independence will be challenged in a world of high debt. Inflation will remain stickier than expected for supply chain disruptions and wage pick up, while economic growth gradually slows down, pushing again for more stimulus. Divergent trends in growth and inflation, and the virus cycle will lead to divergences in Central Bank action and in regional outlook.
In 2022 investors should watch out for 
picto growth-result-eport
Inflation
Picto -  Countries - Localisation
China
picto Global Business Environment
ESG trends

Hot Macro Questions

From euphoria to slowdown?
2022-Invt-Outlook---Picto-1

After the exceptional growth in 2021 driven by reopening and cyclical stimuli, economic growth will likely go back to potential.

From global value chain to self independence?

Evolving geopolitics and risk of natural disasters are accelerating the push to build more national/regional supply chains.

Central Banks, from old to new mandates?

Central Banks will be forced to remain accommodative to support higher fiscal needs to finance energy and social projects.

From temporary to stickier inflation?

Supply demand mismatches, energy prices and wage pressures mean inflation will not return to pre-crisis levels.

Investor to assess 4 sources of risk

Policy mistakes

Policy mistakes

 

Developed market Central Banks are behind the curve in their assessment of inflation, just when growth slows down amid risks of new Covid variants.

Supply bottlenecks

Supply bottlenecks

 

Supply side constraints prove difficult to overcome and pricing pressures prevail, hurting earnings and margins.

Geopolitical tensions

Geopolitical tensions

 

Geopolitical tensions will prevail, as global order is reset and US supremacy ends, leaving a global political vacuum.

Corporate defaults

Corporate defaults

 

As stimulus is withdrawn amid excessive leverage in some areas, businesses may be unable to cope with slowing growth.

Overall Risk Sentiment

We stay risk neutral, more vigilant and look for better entry points, as valuations are high, inflation is proving permanent and growth slows down.

International - Market Stories - Investment ideas for H1 2022 - overall risk sentiment

Guidelines and main changes vs H1

  • Focus on inflation sensitive assets (real assets, dividend, commodities)
  • No strong directional view in equities, preferring quality and value stocks
  • Downgraded emerging markets near term, but see long consumption/growth potential.
  • Remaining short duration
  • Keep protection in place: risks are asymmetric and valuations high
Overall risk sentiment is a qualitative view of the overall risk assessment of the most recent global investment committee.

 

Key convictions for an era of regime shift


10 key messages from the 2022 investment outlook

1

In the battle of narratives, the ‘road back to 70 s’ gains traction

2

Central Banks hold the key to the cycle

3

After an initial tiptoe into tapering, expect more, not less, monetary accommodation

4

The cycle will extend further, but frenzied markets are no longer in sight

5

The concept of EM as a block is definitely over

6

For investors, targeting real returns is the new horizon, but beware of the nominal illusion

7

Real rates will determine the fate of excessive equity valuations. The capping of nominal rates is not forever, therefore investors should resist the temptation to go long duration.

8

Equities are a structural engine of returns and investors should play equities through an inflation lens: value, dividend, infrastructure.

9

Some cracks relating to leverage issues will come to the surface.

10

The green and social recovery will push towards ESG mainstreaming, but the transition will not be linear.

International - Market Stories - Investment ideas for H1 2022 -  risk exposure

Investment themes for H1 2022


As central banks cautiously assess inflation risk, there’s a seeping realisation that some components of inflation will not be transitory. Policymakers nonetheless maintain a benign neglect of inflation and continue financial repression, in part a result of the huge debt piled up by governments due to massive fiscal stimulus. We argue this will not recede as quickly as markets believe, presenting the case for more and not less accommodation amid slowing growth momentum and need to finance the energy transition. Yet, despite the ongoing stagflation debate, companies are able to pass on rising input costs to consumers and navigate supply chain bottlenecks. It’s key here to look for future wage growth pressures and for pricing power sustainability.

In 2022, investors cannot expect 2021 level returns for equities, amid an environment of normalising earnings growth and mounting pressure on margins.

Pressure on government bonds will continue, while interest rates will start rising. With real yields globally in the low range, the search for real income will continue.

The key elements to consider in portfolio construction will be return, liquidity risk and exposure to growth and inflation.

Vincent Mortier
Deputy CIO

This means looking for income in high yielding areas of short duration credit, including EM bonds and in real assets. In light of some asymmetric risks and high valuations, investors should stay neutral in equities, looking for better entry levels but selectively playing on value, quality and dividend themes. Nevertheless changing correlation between equity and bond underscore the need for an active total allocation mindset.

Finally, the push towards a greener and more equitable world means demand for investment products that promote these objectives will only increase, helping them into the mainstream of investors’ portfolios.

 

ACTIVE ALLOCATION:

Target resilience to higher inflation and real returns

In a world of lower returns and changing correlation dynamics, asset allocation must be very active, targeting positive real returns for balanced portfolios through inflation resilient assets.

Read more

International - Multi-Asset - Vignette carré
International - Fixed Income - carre 400
INCOME:

Get smart in searching for “real” income across the board

In light of persistent inflation pressures, investors should explore real income across the board, in higher yielding short duration credit, dividends and non traditional areas (i.e. real assets).

Read more

EQUITIES:

Look at less stretched areas to play the next phase of the cycle

Markets today are characterised by over stretched segments, creating attractive environment for stock selection in areas such as Europe, EM and Value.

Read more

International - Equities - vignette carre 400
International - ESG -Responsibe investment Amundi core commitment_vignette-carré capabilities
ESG GOES MAINSTREAM:

Focus on factors with impact on risk/return

As investors demand products that support the green transition and more equitable distribution of economic growth, ESG will become a central part of investment decisions.

Read more

 


This information is exclusively intended for “Professional” investors within the meaning of the MiFID Directive 2004/39/EC of 21 April 2004, and articles 314-4 and following of the General Regulations of the AMF. It is not intended for the general public or for non-professional individual investors within the meaning of all local regulations, or for “US Persons”, as defined in the Securities and Exchange Commission’s “Regulation S” under the 1933 U.S. Securities Act.

This non-contractual information does not under any circumstances constitute an offer to buy, a solicitation to sell, or advice to invest in financial instruments of Amundi or one of its affiliates (“Amundi”).

Investing involves risks. The performance of the strategies is not guaranteed. In addition, past performance is not in any way a guarantee or a reliable indicator of current or future performance. Investors may lose all or part of the capital originally invested.

Potential investors are encouraged to consult a professional adviser in order to determine whether such an investment is suitable for their profile and must not base their investment decisions solely on the information contained in this document.

Amundi assumes no liability, either direct or indirect, resulting from the use of any of the information contained in this document, and shall not under any circumstances be held liable for any decisions taken on the basis of this information.

This information may not be copied, reproduced, modified, translated or distributed, without the prior written approval of Amundi, for any third person or entity in any country or jurisdiction which would subject Amundi or any of its products to any registration requirements within these jurisdictions or where this might be considered unlawful. This information is provided to you based on sources that Amundi considers to be reliable, and it may be modified without prior warning.

Get in touch with us

Our online help service is available to answer your question.

My personal information

If you have a question about our company or one of our products, please complete the form to get in touch. Please do not mention your account numbers or critical data in this form.

Civility*
CAPTCHA This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.

(*) Required fields
All our job offers (Permanent and temporary position, Internship, Apprenticeship or VIE) are available on our dedicated website: https://jobs.amundi.com.

Register and apply directly online.

Amundi on Twitter