Chapter 3 Buy the winners of global growth

Year Ahead 2022

9 min read

Even amid omicron concerns, global economic growth is likely to remain above trend for the first half of 2022, and we see Eurozone and Japanese equities, US mid-caps, global financials, commodities, and energy stocks as beneficiaries. Among our “22 for ‘22” stock picks, we feature companies that benefit from consumer spending on services with those exposed to business and government spending.

Markets have experienced a bout of volatility following the emergence of the omicron variant of COVID-19. Our base case is that the variant will broadly merge into the existing delta wave, with governments only imposing mild and short-term restrictions on economic activity. In this environment, we would expect markets to shift their focus beyond omicron to the underlying economic trajectory. We still expect strong earnings growth in 2022. Within that, we expect cyclicals to post the highest earnings growth rates, given their greater sensitivity to economic growth. In particular, we like the Eurozone and Japanese equity markets, global financials, and US mid-caps. We also like commodities and energy stocks, which would also benefit in case inflation is more persistent than in our base case. By contrast, we see only limited upside potential for global industrials, real estate, and consumer staples.

Eurozone equities look attractive relative to bonds

The Eurozone market is cyclical and current investor positioning to the region is light: Among UBS Wealth Management self-directed clients, just 3% of equity holdings are in MSCI EMU stocks, compared with the Eurozone's 9% weight in the MSCI ACWI Index. We expect Eurozone equities to be supported by accommodative monetary and fiscal policy, above-trend GDP growth, higher earnings growth than most regions, and undemanding valuations. MSCI EMU is currently trading at 15x forward consensus P/E, a 16% discount to global equities. The market is also home to various longer-term themes including digital leaders, greentech, and “Q-GARP”––quality growth at a reasonable price.

Want to discuss this topic with your financial advisor?

Investment ideas

Are you a UBS advisor?

UBS employees on the internal network only: Find implementation ideas on impact.