Main asset classes
Fixed income
Government bond yields will likely move higher on the back of economic growth momentum and policy normalization in 2022. As inflation rates slow, we no longer expect US inflation-linked bonds (ILBs) to outperform nominal bonds, though there is room for Eurozone ILBs to do so.
Equities
We expect earnings to be the key driver of equity returns in 2022. In line with our earnings expectations, we expect high single-digit equity returns in 2022 compared to double-digit returns in 2021. Other tailwinds for this asset class going forward include the ongoing economic recovery, and the “there is no alternative” (TINA) argument for equities.
Currencies
Going into 2022, the currencies that are expected to be in favor are those that can benefit from their central banks’ gradual move toward normalization. This transition phase may also prove supportive for more cyclical currencies, such as commodity currencies.
Real estate
Historically low interest rates and the ongoing economic recovery should be supportive of real estate investments in 2022. That said, pandemic-driven structural shifts persist and we continue to favor sectors underpinned by secular growth drivers, such as logistics real estate.
Hedge funds
As tailwinds for cyclical strategies abate, we prefer lower market-beta hedge fund strategies and yield alternative investments. We expect modest returns next year that are close to the long-term average. Due diligence and manager selection are key.
Private markets
The economic backdrop remains supportive for private markets, but investment conditions are more competitive going into 2022. While we expect private markets to deliver below long-term average returns, there are still opportunities underpinned by secular growth and market dislocations. Sound due diligence and portfolio approach are key factors for success.
Commodities
As we head into 2022, the demand environment for commodities is set to remain supportive given expectations for continued above-average global industrial production growth and restocking needs. That said, some moderation is likely.
