2022 will be a “year in two halves” as investors familiarize themselves with the new normal in growth and inflation after two years disrupted by the pandemic.
This is the point of view of the Swiss investment bank UBS, in its Year Ahead 2022 report, published this afternoon.
He predicts that global economic growth will be well above trend in the first half of next year, before normalizing in the second half as the effects of the reopening wear off.
So, from an investment perspective, regions that are performing well now should do well in the first half of the year, such as the United States and Europe.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said on a media call that investors should “buy global growth winnersWhich includes Eurozone and Japanese stocks, US mid-cap companies, global financials, commodities and energy stocks.
Haefele added that China and emerging markets may be ready to take over in the second half of next year, if inflation and growth have normalized.
UBS’s central scenario is for Chinese growth to stabilize, with Covid-19 restrictions starting to be lifted in 2Q 2022.
Other recommendations include:
- Look for opportunities in the field of health. While growth should be strong in early 2022, favoring cyclical sectors, a slowdown during the year should start to favor more defensive segments of the market, such as healthcare.
- Look for an unconventional yield as interest rates, bond yields and credit spreads remain low by historical standards. US senior loans, synthetic credit, private credit and dividend-paying stocks look attractive.
- Position for a stronger US dollar because a combination of the Fed’s decline and the slowdown in global growth favors the greenback, against currencies linked to softer monetary policies, such as the euro, the yen and the Swiss franc
And the long-term vision is that over the next decade, investors should look for opportunities in the zero-carbon transition and the “ABCs” of disruptive technologies – artificial intelligence, big data and cybersecurity.
2022 will also be a year in two halves for the US Federal Reserve, predicted Solita Marcelli, UBS’s chief investment officer for the Americas.
She explains that the Fed will have to be patient with high inflation in the first half of the year, as it expects an improvement in the participation rate of the US workforce (a key part of its mandate). Pricing and growth pressures are likely to normalize in the second half of the year.
But in the face of unclear economic signals, the Fed is likely to err on the side of accommodating monetary policy rather than take the risk of tightening too early and hurting growth, it adds. Thus, the first hike in US rates will probably not occur until 2023.
But other central banks could act faster in 2022.
UBS expects the Fed to end quantitative easing by mid-year, the ECB to further cut its bond buying program, and the Bank of England, the Bank of Canada and the Reserve Bank of New Zealand are raising interest rates.