Where 2021 was all about Covid recovery, we see 2022 as the start of a major transition – one demanding close attention from investors keen to make the most of tomorrow.
The global economy is already emerging from the pandemic profoundly changed. There is significantly higher public debt, the trend toward digitization has accelerated particularly in healthcare, banking and retail, and there is a far greater emphasis on sustainability post-COP26 (26th UN Climate Change Conference of the Parties [COP26] in Glasgow).
Our Investment Outlook 2022 looks at what you need to know to stay a step ahead as the global economy moves from the volatility of the pandemic towards a new state. We predict solid demand to drive global growth of 4.3%1 in real terms – an uptick on pre-pandemic levels – and earnings growth of 7.6%2, despite a labor shortage and some production issues potentially fueling inflation. This presents interesting opportunities for investors in certain equities, real estate and hedge funds, among other asset classes.
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Hear from our Chief Investment Officer, International Wealth Management, Nannette Hechler-Fayd’herbe, about what will shape markets in the coming 12 months.
Position for the best growth
At 4.3%3, economic growth will be above pre-pandemic levels, but not all sectors will grow equally. Areas to watch are those that lagged behind the early recovery – particularly services, such as restaurants and travel, which we expect to grow faster than the overall economy when higher vaccination rates allow for a relaxing of social distancing measures and mobility restraints. Our forecast for manufacturing and industrial production is good given low inventories, once supply-chain problems are resolved at least partially.
Be aware of inflation
While there has been much talk of inflation, we see recent inflationary pressures as largely transitory, due in part to the temporary nature of the supply shortages. Still, we expect it to remain above central bank targets and that in response central banks will slow their asset buying (quantitative easing) as well as initiate first interest rate rises – at least in some countries. This induces to stay light in bonds.
Keep an eye on interest rates
Interest-rate rises are most likely in the U.K. and some emerging markets such as Brazil and Turkey. We also think the US Fed is likely to hike rates - but not before Q4 2022. In the U.K., the combination of Brexit, labor and other supply shortages will make inflation tougher to overcome than elsewhere, and we forecast two rate rises in 2022. In Brazil and possibly Turkey, high government debt could also fuel rate rises.
Generally, the combination of slightly lower inflation and steady or higher interest rates could push real interest rates upward. Another strike against bonds.
“The global outlook for 2022 looks promising. There are some headwinds ahead, like monetary policy changes, cost pressures for companies that may already experience pressures on margins. So, more than ever, 2022 will require an active investment approach to keep one step ahead.” – Nannette Hechler-Fayd’herbe, Chief Investment Officer, International Wealth Management, Credit Suisse
Stay a step ahead across all asset classes
Equities, on the other hand, look set to benefit from strong global growth, albeit with earnings growth in the single figures. Besides the aforementioned services, sectors to seek out are those that can pass on rising costs and those insulated from possible supply-chain disruptions. We also favor sectors focused on sustainable solutions – agritech and foodtech, for example.
In alternative investments, energy markets will remain volatile over the winter and gold could fall as normality returns in real yields. Private markets and hedge funds remain areas of opportunity for those well advised or highly experienced. The coming 12 months offer great opportunity, but also carry risks as the transition takes hold. If you’d like to know more about our outlook for 2022, download the full report.
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All investments involve some level of risk. Simply defined, risk is the possibility that you will lose money or not make money. Before you invest, please make sure you understand the risks that apply to the products. As with any investment, you could lose money over any period of time.
To the extent that these materials contain statements about the future, such statements are forward looking and are subject to a number of risks and uncertainties and are not a guarantee of future results/performance.
Footnotes:
1 "Investment Outlook 2022", p. 18 (Credit Suisse), November 2021
2 "Investment Outlook 2022", p. 39 (Credit Suisse), November 2021
3 "Investment Outlook 2022", p. 18 (Credit Suisse), November 2021
Source: Credit Suisse, unless otherwise noted.
