Q1 equity market outlook
With ongoing inflation concerns, what areas of the market will offer opportunities in 2022?
Inflation 鈥 the story of 2021; unlikely of 2022?
Inflation 鈥 the story of 2021; unlikely of 2022?
- From March 2021, we saw a sharp rise in year-on-year inflation due to the artificially low base in summer 2020 post pandemic.
- Given the high base for inflation in 2021, year-on-year comparisons will look much tougher in 2022.
- Therefore, we expect inflation to peak in Q1 2022 and normalize to more moderate levels thereafter.
US Consumer Price Inflation (% year-on-year growth)
US Consumer Price Inflation (% year-on-year growth)
Omicron 鈥 muddling the recovery picture
Omicron 鈥 muddling the recovery picture
- The highly infectious Omicron variant will place further strain on the global economy.
- Consequently we expect to see continuous short-term lockdowns and travel disruptions.
- This could in turn prolong the normalization between the inflationary impact of goods vs. services.
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COVID infections, hospitalisations and deaths in the UK (per million)
COVID infections, hospitalisations and deaths in the UK (per million)
China 鈥 the wild card
China 鈥 the wild card
What is known
- China was the first major economy hit by COVID-19 but also the first one to recover.
- Given its zero tolerance COVID policy, further localized lockdowns can be expected.
- Chinese property, credit and equity markets have already been negatively impacted.
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What remains unknown
- The stimulus package in 2020 following the first phase of recovery was relatively modest.
- We have seen first signs of the government鈥檚 attempts to stabilize the economy by cutting the reserve rate and increasing the issuance of local bonds.
- The extent of the stimulus will determine global growth and commodity prices given that China is the world鈥 second largest economy and the largest consumer of most commodities.
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