As we contemplate the investment outlook for 2022, it pays to remember that market Forecasts usually tell us more of the forecaster than of the future.
As a participant in the global financial markets, it is important to recall that a stock market is a place that transfers money from the active impatient trader to the patient strategic asset allocation investor. family offices tend to be patient capital
One skill of the seasoned investor is to distinguish what is consensus and what is not? construct robust portfolios accordingly.
Just because its consensus does not make it wrong is an old and profitable wall Street saying.
Consensus can become a trend before it becomes a bubble or extremely overcrowded trade. The trend is your friend works until it does not and reversion to mean kicks in.
In 2022 global investors might have to expect lower returns from public markets investing compared to the previous years of cheap money and abundant liquidity.
More than covid the biggest market risk for 2022 could well be still inflation.
As stewards of capital and investment portfolios, the most important question fund managers and clients face today is whether the 40-year trend of disinflation ended in 2021?
The FED scrapped its “inflation is transitory” narrative and now the consensus for inflation increasingly is “Higher for longer” and that US interest rates will have to rise this causing potential headwind to equities at a high valuation.
Global stock indexes will probably rise 5% or less in 2022, following three years of double-digit increases. The base assumption here is that U.S Fed will raise interest rates 3 or 4 times in 2022 and that it will reduce its balance sheet reducing liquidity to global financial markets.
Federal Reserve Bank of Cleveland President Loretta Mester said the central bank should shrink its balance sheet as fast as it can without disrupting financial markets"
The prime mandate: "without disrupting financial markets"
if the Fed only raises interest rates once or twice and doesn’t reduce its balance sheet, the equities market might perform better than expected.
If the Fed cuts its balance sheet significantly and reduces the flow of liquidity, equities may turn bear market and show a decline for the year.
As inflation expectations are rising, financials and energy increasingly seem the preferred sector.
Rotation from tech to pharma sector stocks could become a wall street sell-side narrative. As covid virus mutations are a booster shot for biotech and pharmaceutical stocks and ETFs.
One of the biggest consensus calls this year is that Europe could outperform the US, in global equity strategy.
Fund managers and private clients alike increasingly Favour European Stocks as U.S. Risks Grow Forecasts are for the EU region’s stocks to outperform this year as the outlook for
U.S. equities dim. Europe’s less stretched valuations are a good place to seek shelter as U.S. interest rates rise
The current consensus is that the U.S. is more vulnerable to rising bond yields and that the earnings gap between the U.S and Europe is narrowing. European equities have trailed the U.S. for the best part of the last decade, with U.S. stocks defying concerns about stretched levels of valuation.
European financials are widely believed forecasted to be the best performing sector in 2022.
Long Financials & the Long energy sector are key consensus calls.
China and Indonesia this year are expected to show full-year GDP growth of 5.2% and both markets offer attractive opportunities for global investors.
Long Indonesia for 2022 is increasingly becoming bank research consensus view among wall Street banks and major private banks, seasoned private investors however should recall the old market adage "just because it is consensus does not make it wrong."
After being the worst-performing market in 2021, Chinese equities will have a better year in 2022, based on low valuation and policy support. Despite weak corporate earnings growth and lingering regulatory risks, China stocks this year could be boosted by potential policy easing and valuations improving from historically low levels and a potential reversion to mean. The politically driven argument that China as the world’s 2nd largest economy has become “un-investable” has most probably gone too far Chinese stocks’ valuation looks compelling after a sharp correction last year, The MSCI China Index is trading at a 33% discount to its global peers, Gold has been hard money for close to 6000 years, yet when inflation was rising many wondered why gold prices did not rise more. Why gold has lost some of its investment allure. It has been less reliable than inflation-protected Treasuries and is less exciting than crypto.
Old fashioned traditional banks have been anti-crypto for many years and actively tried to prevent clients from buying bitcoin all the way from 1k to 44k. but the old wall street adage “when you can’t beat them join them comes to mind” and played out in the private banking world.
The argument has been that bitcoin threatens the US dollar or other fiat currencies of highly indebted countries, so governments around the world will intervene to stop the adoption of the blockchain asset., legacy system, and fractional reserve banking system banks had to be compliant.
Renowned British economist and father of the World Bank, Sir Maynard Keynes opined” if the facts change I change my opinion, what do you do Sir? “ Goldman Sachs which has gold in its name and has been considered the gold standard of the best on wall street changed its tune on crypto arguing bitcoin will continue to take market share from gold, making a price prediction/forecast of $100,000 a possibility rather than impatient tactical crypto trading, long bitcoin as a strategic asset allocation decision as part of a global and well-diversified portfolio, carries its weight in gold, in my view.
Rainer Michael Preiss serves as an investment advisor & portfolio strategist.
