Keeping up with our Investment Outlook for 2022

Tuesday 08 February 2022

Cross Asset


Keeping up with our Investment Outlook for 2022

February 2022 | The remainder of 2022 will likely test the effectiveness of the policies deployed since the peak of the pandemic; fiscal and monetary policies are set to tighten up at a time when the growth/inflation mix is becoming more challenging and there is less room for policy flexibility. Fundamentals will be key to disentangling divergent trends in a year that started on a much weaker footing than many expected.

01 |  Featured Topic: Developed markets will face the challenge of retuning to normality. Fiscal and monetary policies will tighten as the growth/inflation mix is becoming more challenging. Fundamentals will be key to disentangling divergent trends.

02 | Thematic: Real interest rates in the US and Europe have reached negative levels that are unprecedented in recent history. The journey back to zero could be a key driver of cross-asset relative returns and volatility.

03 | Global Research: While some impacts of Omicron look similar across countries, policy reaction has not been uniform, leading to regional disparities.

2022 Feb Cross Asset - Keeping up with our 2022 Outlook

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The age of the 'Great Coincidence' in the policy mix is over. Budget deficit reductions are near, and will be accompanied by diminished household savings and greater pressure on corporate profits in light of wage negotiations. The widespread belief that fiscal spending is effectively unlimited is going to be severely tested. On the monetary side, we're witnessing the end of ultra-cheap money. Central banks have had to hike rates and drain liquidity in this time of looming stagflation, but will maintain a benign-neglect tilt and allow inflation to run to preserve growth.

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A Late Cycle With a Greater Focus on Inflation

May 2022 | We are witnessing significant divergences in the economic outlook (we have revised down the EU and Chinese economic outlooks vs. that for the more resilient US economy) and in market performances. From an investment standpoint, while investors should maintain a neutral risk stance, there is room to play these divergences across the different asset classes. As the great asset repricing unfolds, investors should be ready to adjust their allocations to deal with inflation.