Predictions are hard – especially about the future, goes the old adage.  But many of the factors that drove a 27% return in developed markets for the first 11 months of 2021 are still with us going into 2022.

So what should investors look out for in the markets in 2022?  Here are five trends to consider.

Inflation and interest rates: when is temporary permanent?

The rise in inflation was becoming clear when we wrote last year’s investment outlook.  With more than 12 months of data, the highest rate of inflation since 1982 in the US, and no immediate sign of a reduction, it’s getting hard to dismiss inflation as a temporary blip.

Where does that leave investors?

In past times, inflation at these levels would have led to a substantial rise in interest rates.  But while the world’s major central banks have taken baby steps towards an increase in rates, it seems clear that large rises are off the table.  More important is keeping jobs and the economy afloat through the coronavirus crisis, and inflating away the value of all the debt that has been created in the process.

That’s led many investors into the arms of TINA. That is, they’ve concluded that There Is No Alternative to putting their money into risk-based assets if they want to see a return on their money – or at least keep pace with inflation.

Growing pains

It seems likely that the pace of economic growth will abate in some countries.

Emerging markets in particular may feel the pressure.  China’s zero-Covid policy, for example, is taking a toll.  And countries with large unvaccinated populations are most exposed to disruption if variants prove severe.

Developed economies, in contrast, seem set to benefit from continued strong government supports, low interest rates, and the increasing capability of businesses and individuals to adapt and trade through the pandemic.

Geopolitics could affect markets in 2022

More broadly, global power politics grew as an investment factor during 2021, and several questions remain open as we enter the New Year.

China’s increasingly assertive approach to Hong Kong and Taiwan has potential to disrupt markets globally.  The territories are globally important and connected in respect of their financial and tech/ semiconductor industries.

Closer to home, Russia continues to exert pressure both on its close neighbours and Europe more generally as a major gas supplier.  The cost of energy – and security of its supply – is a vital part of the inflation question at the top of this article.

Environmental, social and governance (ESG) is ever more important

But despite the challenges of weaning the world off hydrocarbons, the move to a sustainable energy future is well underway, and was given extra impetus at the COP26 talks in Glasgow in November 2021.

For investors, it’s clear that ESG criteria are increasing in importance – and in fact can play a key role in de-risking your returns in the markets in 2022.

The drive towards ESG is creating new growth opportunities – from leather substitutes to vegan meat, for example.  It’s re-shaping supply chains, with a definite move from ‘just-in-time’ to ‘just-in case’, to use the current jargon.  And it’s making investors think more carefully about the long-term nature of their investments.

After all, the one attribute all of us want from our money is for it to be sustainable, rather than crash and burn.

You can read more about ethical and ESG investment options for Ireland-based investors here.

Tech under pressure…

Many technology stocks surged in 2021, with Alphabet/ Google up more than 60%, for example.  But can it continue?

There are certainly signs of trouble in the ranks.  One notable underperformer was Ark Innovation/ ARKK, the flagship tech fund run by Ark Invest.

Having grown by around 150% in 2020, the fund had fallen about 25% in 2021 by mid-December, suggesting the limits of growth potential for less mature tech stocks that benefited from the move to home working during 2020.

…and a resurgence in value stocks?

If technology and growth stocks have – in some cases – paused for breath, is it finally time for value stocks to have their day in the sun?

This is definitely one where predictions are tough for markets in 2022, if only because there have been a lot of false dawns for shares which are attractive on a valuation basis.

But a prudent investor seeking balance in their portfolio after such a strong run for growth-driven stocks will surely find room for financial, utility/ energy and industrial businesses offering strong cash flows today, particularly in an inflationary environment.

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