Learn more about market trends Investment Outlook 2022. The great transition.
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.
Our six key topics for 2022
In 2022 we focus on six themes that will benefit from the transition to an economy with technology and sustainability at its heart as we return to an environment of more normal monetary policy and growth.
1. Select opportunities in fixed income
Crossover credit risk, Asia and senior loans offer enhanced yields: Crossover credit risk could boost rates on short-term bonds/floating-rate notes. In Asia, opportunities lie in high-yield credits, but steer clear of Chinese real estate. Senior loans offer a higher return to reflect higher risk.
2. Inflation winners
Companies that can pass on price rises can reward their shareholders. Stronger pricing power and brand loyalty will translate into higher shareholder returns. Look for such attributes in energy, capital goods, insurance, construction materials, auto and components, diversified financials and banking sectors.
3. Bouncing back from Covid
Supply chains are getting unstuck and capital investment is going up. Air freight, marine and road haulage are enjoying strong demand with limited scope to increase capacity, while capital goods suppliers and IT companies with automated and digital solutions are set to benefit from increased investment in resilience.
4. The silver economy remains strong
An older, richer population will reshape demand. Novel technologies are set to be applied more widely to age-related conditions and biopharmas have significant resources for further expansion. In travel, seniors in countries with high vaccination rates are starting to holiday again.
5. Next-level innovation in food
The need to feed the planet sustainably is fuelling a food revolution; diets are becoming more plant-based, precision farming is lifting yields with fewer inputs and innovation is reducing the need for plastic and shortening supply chains.
6. Tap private markets for early growth
Direct investments at realistic valuations in high-growth sectors: Fast decision-making and readily available capital mean venture capital funds spot promising innovations early. Secondary managers exploiting market dislocations during 2022 are also well placed. But a sound due diligence and a diversified approach are crucial as ever.
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Investing in a world of change
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 (Climate Change Conference 2021 in Glasgow).
Our Investment Outlook 2022 looks at what you need to know to stay a step ahead as the global economy moves beyond pandemic volatility to a new normal. 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.
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 outperform. Our forecast for manufacturing and industrial production is good, once supply-chain problems are resolved.
Be aware of the threat 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) rather than increase interest rates. But the threat alone is reason enough to stay light in bonds and cash.
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. 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.
Elsewhere, we see governments winding down Covid-mitigation stimulus and asset buying, trying to manage their debt and therefore leaving interest rates unchanged for 2022. However, the combination of slightly lower inflation and steady or higher interest rates could push real interest rates upward. Another strike against cash and bonds.
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 cutting-edge sectors focused on sustainable solutions – agritech and foodtech, for example.
We expect real estate to respond well to low interest rates, but the picture is less clear for commodities. Supply shortages have lifted prices, but this is short-term. Energy markets will remain volatile over winter and gold could fall as normality returns. Finally, private markets and hedge funds remain areas of opportunity for those well advised or highly experienced.
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.