What we will see in 2022 is divergence, foremost in monetary policy. While we expect that economic performance will remain above potential in major developed economies such as the United States (US), which in turn will lead to somewhat tighter policies, we see some economic headwinds for China. In the latter, economic momentum is slowing, which leads to easier momentary policy: China cut the reserve requirement ratio two times over the last months and recently also reduced the benchmark interest rate. This should lead to somewhat better performance of asset prices next year.
In general, the global cycle is entering a mature phase, in which a normalisation of policies is warranted. The abating stimulus from major central banks is leading to higher volatility in capital markets; nevertheless, we believe that the upward trend in major equity indices is still intact and we expect the upward potential to be around 5% in 2022, plus the dividend yield. On the bond side, we believe that inflation concerns will drive yields higher. This is partly reflected in the expectations of a monetary tightening cycle in the US. In addition, we are likely to see steeper yield curves in Europe, where front end rates are anchored by an easier monetary policy than in the United States. All in all, we still prefer corporate bonds in the fixed income area. The current spread will help to cushion the higher rates of the base curve and the carry will help to generate income for investors. On the foreign exchange side, the divergence in monetary policy on a global basis is likely to support the US dollar. Partly, this is already reflected in current FX rates; nevertheless, the actual realisation of expected hikes in the US, no change of the benchmark rates in the Eurozone, and actual easier monetary policy in China will have repercussions for spot exchange rates. Last but not least, what does the above mean for commodity prices? It goes without saying that, gold might come under pressure initially. In contrast to this, we still think that demand for industrial metals is solid, and might be supported by easier policy in China, and finally, we see oil as fairly valued.
All in all, 2021 was a fantastic year for risky asset prices; although we believe that we are in the last phase of the cycle where volatility is picking up, we continue to be positive for major asset classes in 2022. Temporary setbacks can be used to add exposure to portfolios! Apart from our general outlook, one topic we very much would like to highlight are investments in energy infrastructure, alternative supply, and power reliability. In 2021, we saw the consequences of vulnerable energy supply chains, as well as high fluctuations in electricity prices. In addition, the recovering demand helped to support energy prices throughout the last months. Hence, we have identified promising opportunities in the energy space. Feel free to get in touch with us for further information on promising investment opportunities in the space of energy infrastructure, power security and alternative sources of energy.
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