Q1 equity market outlook
With ongoing inflation concerns, what areas of the market will offer opportunities in 2022?
Inflation – the story of 2021; unlikely of 2022?
Inflation – the story of 2021; unlikely of 2022?
- From March 2021, we saw a sharp rise in year-on-year inflation due to the artificially low base in summer 2020 post pandemic.
- Given the high base for inflation in 2021, year-on-year comparisons will look much tougher in 2022.
- Therefore, we expect inflation to peak in Q1 2022 and normalize to more moderate levels thereafter.
US Consumer Price Inflation (% year-on-year growth)
US Consumer Price Inflation (% year-on-year growth)
Omicron – muddling the recovery picture
Omicron – muddling the recovery picture
- The highly infectious Omicron variant will place further strain on the global economy.
- Consequently we expect to see continuous short-term lockdowns and travel disruptions.
- This could in turn prolong the normalization between the inflationary impact of goods vs. services.
COVID infections, hospitalisations and deaths in the UK (per million)
COVID infections, hospitalisations and deaths in the UK (per million)
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Concentrated alpha equities
Concentrated alpha equities
High active share with an integrated ESG approach
China – the wild card
China – the wild card
What is known
- China was the first major economy hit by COVID-19 but also the first one to recover.
- Given its zero tolerance COVID policy, further localized lockdowns can be expected.
- Chinese property, credit and equity markets have already been negatively impacted.
What remains unknown
- The stimulus package in 2020 following the first phase of recovery was relatively modest.
- We have seen first signs of the government’s attempts to stabilize the economy by cutting the reserve rate and increasing the issuance of local bonds.
- The extent of the stimulus will determine global growth and commodity prices given that China is the world’ second largest economy and the largest consumer of most commodities.
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