With global equity markets pushed higher again in the last quarter of 2021, there were investment opportunities, despite the effect of a new variant of the pandemic in the mix. But it’s clear that inflation could be the watchword of 2022. Julian Broom, our Chief Investment Officer, explores recent developments in investment markets and shares what might be to come.
Strong economic recovery really was the theme of last year, and this continued through the fourth quarter. This has, of course, been driven by huge spending from governments around the world, and very low interest rates from Central Banks.
Against this backdrop, and despite the risk factors for markets in 2021, several equity markets enjoyed record highs. In fact, it’s quite useful to think of the past year with something of a ‘buy-the-dip’ theme; whatever setback occurred, it prompted a buying opportunity for investors.
But now inflation is starting to bite, and the latest figures for the UK, US and the Eurozone show very high levels. Time will tell how markets will hold up, especially given the action that Central Banks are likely to take to raise rates and stave off inflation growth.
The reasons why prices are soaring have not gone away, even if they are lessening. With a tightening of monetary policy, it’s likely that bond yields will rise to levels last seen before the pandemic; across major markets and not just in the US.
It’s also fair to note that geopolitical noise is growing, especially between Russia and Ukraine, and Iran. 2021 has shown us there’s some resilience in equities, but it’s probably useful to be careful and to select managers which focus on value over growth. Return expectations in early 2022 are likely to be more moderate, especially given volatility in the short-term at least, but, as in 2021, opportunities are still available.