A Bumpy Start, To An Expected Bumpy Year – January 10, 2022

A just-published report updated our multi-asset investment stance, and discussed the prospects for global financial markets in 2022.

Risk assets still have growth tailwinds, but face a clear threat in the year ahead as global interest rates will finally shift meaningfully higher as inflation will prove sticky. Investors should expect a bumpy ride in 2022 with much lower overall portfolio returns than last year alongside greater volatility, as last week’s markets jitters highlighted with many government bond markets recording new cycle highs in yields.

We continue to favor equities (neutral with an upgrade bias) over bonds (underweight), and have an overweight stance on cash to prepare for periodic opportunities along the way. Rising earnings will support equities, but will be partly offset by pressures for a de-rating as bond yields rise. Within equities, we are overweight euro area and China stocks, while maintaining a neutral weighting with a downgrade bias on the richly-priced U.S. market. Healthy global growth should enable already-elevated commodity prices to stay range-bound this year, justifying a neutral stance within a multi-asset portfolio. And a solidifying global economic recovery will eventually weigh on the U.S. dollar, despite Fed rate hikes: the euro and EM currencies are positioned to benefit.


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