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Wavelength Capital Management
ANDREW DASSORI
CHIEF INVESTMENT OFFICER, WAVELENGTH CAPITAL MANAGEMENT
No economy was able to escape the impact of Covid-19, and over the past two years the virus has upended people’s lives across the globe. Policies implemented during the period, however, have left countries in markedly different fiscal and monetary positions as they seek to manage a wide range of trajectories for growth and inflation coming out of the pandemic.
We believe the dispersion in economic circumstances from one bloc to the next will be a key driver in how markets evolve in 2022 and provide a deep opportunity set for investors who understand the dynamics at play. The picture is clearest when assessing a developing world with more traditional monetary policy tools available versus a developed world where rates are near zero and the coordination of fiscal and monetary policy has grown increasingly critical. In this environment, we see a heightened potential for policy errors and expect markets to recalibrate to account for new risks on the horizon. On the geopolitical front, it is likely that existing tensions are already priced into markets, but as the world bifurcates into spheres of influence around the US and China, mounting long-term pressures beneath the surface of this relationship may not yet be fully appreciated. Policy developments around trade, technology, and foreign investment have already begun reshaping how these economic ecosystems interact, and if their disentanglement were to accelerate, we would expect significant knock-on effects for the global economy. Beyond potential direct impacts on supply chains and capital flows, a lack of coordination between the US and China could make addressing global issues like climate change increasingly difficult. We expect the changing nature of this relationship to be a driving force in markets over the coming year and beyond.
With the global economy in a state of transition, we believe that adapting to a new policy landscape and managing the risks that result will be increasingly important for investors. In this context, we seek to maintain a balance to potential economic outcomes while actively monetizing the increased opportunity set produced by these disruptive forces across markets.
CHAPTER TWO
EQUITIES
