Insights

An ability to look forward to better times and remain optimistic is invaluable. These attributes are no less helpful when investing in equities. Whilst you can get an unpleasant surprise from misjudging the direction of the tide while enjoying your picnic, the consequences for misjudging the direction of the liquidity waves look more pronounced than ever as we enter 2022.

As is often the case, markets are a better reflection of general sentiment than news headlines and so far, it points to an ongoing global recovery as equities hold their gains of 2021 and long-term bond yields rise. It may not be time yet to write off more difficult scenarios derived from the outbreak of Omicron, but facts so far do speak more positively than just one month ago.

On the back of uncertainties surrounding Omicron and major central banks turning hawkish, we deem it prudent to hold a slightly cautious stance on duration, as well as a slightly defensive stance on Asian currencies.

Taiwan and South Korea were buoyed by strong exports as sustained global demand for electronics supported hardware tech stocks amid widespread supply chain disruptions. The ASEAN region saw mixed returns. Thailand was the best performer as policymakers approved new stimulus measures to support domestic consumption, while the Philippines had to delay COVID-19 vaccinations on the back of Typhoon Rai.

We expect Japanese equities to rise significantly in 2022, supported by factors such as the government’s fiscal and coronavirus policies, the reshuffling of the Tokyo Stock Exchange (TSE) and robust exports.

We maintain a constructive view of risk assets but are cognizant that the path toward realising gains will be more delicate as we traverse the course of the Fed and other central banks removing their easy policies.

We believe that Asian economies are well positioned to navigate monetary tightening in the US. Government finances are healthier, as are corporate balance sheets. Most Asian economies are digitising faster than their western peers, while consumption is set to receive a meaningful boost from economic reopening.

According to our Global Investment Committee, which concentrates on the intermediate term-view regarding developed markets for pension funds and other long-term investors, 2022 looks to be a challenging, but positive year for risk assets. We believe that the G-3 central banks will become more hawkish, and such pivots can often cause potholes and at the very least headwinds, but we trust that policymakers can traverse their new course successfully overall.

For a nation that prides itself on punching above its weight in all we do, 2021 has seen New Zealand bobbing and weaving against the ropes somewhat, as we’ve fought the economic impact of an enduring COVID-19 pandemic. We may have been down in some places, but we’re certainly not out as we approach 2022.

The initial discovery of the Omicron variant was met with fairly sensational reporting by some of the world’s media and this fed through quickly into investor sentiment. It is probably true, however, that even if Omicron had not surfaced it was probably about time that investors were again reminded of the volatility that resides in markets, despite the mollifying impact of endless liquidity injections by central banks.