2 minute read
Balchug Capital
DAVID AMARYAN
FOUNDER AND CEO, BALCHUG CAPITAL
The prominent risks we have identified, include inflation, Covid-19, geopolitics, supply chain problems, labour shortages, slowing global growth, slowing corporate earnings and diminishing equity returns.
We believe that inflation can create a major headwind for markets globally in 2022. At the beginning of the year, the inflation forecast was 2 per cent. Now, it’s around 7 per cent, and it can be higher. It is broad-based and is probably not as “transitory” as some people think. Keeping inflation under control is one of the Fed’s main priorities. In 2022, it will be more aggressive in ending its assetbuying programme and raising rates, which will slow down global growth, with all the implications that come with it.
Covid-19 will continue to be on everyone’s radar. Today, we are worried about the Omicron variant, tomorrow other more deadly variants might emerge, and this uncertainty will continue to create volatility in the markets. We are a bit more optimistic than most other people. Unless something extraordinary happens and we get hit with an extremely contagious and deadly variant, we should be able to deal with new outbreaks faster and more effectively than before. This is not March 2020. We are more prepared than ever before. We already have a vaccine and know how to change it quickly to protect against new variants. Hence, we see fewer chances of lockdowns. Nonetheless, Covid-19 can cause wild moves in the markets and increase volatility in general.
In terms of geopolitics, Russia, Ukraine, China and the West’s response will be the focus in 2022. We are generally optimistic and believe that geopolitical tensions will ease in 2022. We do not expect the Russia/ Ukraine conflict to escalate to actual war – that is nonsense.
Volatility creates opportunities. Hence, all the above-mentioned risks can create opportunities in 2022. The ability to differentiate real systemic risks from market overreactions will be key. We generally expect muted returns in the broad market. Rising interest rates will put pressure on growth stocks, especially the ones with no earnings, but extremely high valuations (and there are plenty of those). In 2022, we will be even more selective and focus on quality names, events and commodities. For this year, we like: value, some growth sectors (such as EVs), Biotech (where we expect to see continuing consolidation), China, Russia (as tensions ease, we predict lots of opportunities and events), commodities and crypto.
