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31 January 2022
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Key investment themes to watch in 2022 TIMOTHY RANGONGO Editor: MoneyMarketing
S
ubstantial changes continue to rapidly reshape the world as we know it, with significant implications for investors. Investors have to keep considering the issues that are most likely to drive future financial, social and political developments in a way that enables them to make the decisions needed to meet their investment objectives. As a new year begins, so do new concerns over the global economy. New restrictions related to rising Covid infections across the globe, including the emergence of the Omicron variant, are among growing concerns. The resurgence in positive cases is generally perceived as a short-term drive and shouldn’t generate significant economic damage. With the new variant, the world is fortunately not back at square one as we were in March 2020. We have since learnt a lot about the virus; the science is moving at speed, including rising vaccination coverage levels. There is a lot that has been amassed from previous waves. There are now new tools and treatments to limit the impact on health systems. Though economic disruptions are instinctively projected, they will not destroy demand and spending outright.
Post-pandemic growth There are expectations of strong global growth in the coming quarters, mainly owing to continued medical improvements, a consumption boost from pent-up saving, and inventory rebuilding. According to Goldman Sachs estimates, for 2022 as a whole, global GDP is likely to rise 4.5%. “There is a growing body of evidence that vaccinations will allow economies to open up, governments to reduce lockdown restrictions, and economic activity to return to pre-pandemic levels,” says Arthur Kamp, chief economist at Sanlam Investments. Demand remains strong; surveys that track the pace of business activity have shown no let-up, while high-frequency data confirms this picture. Companies recorded record third-quarter profits and margins, and have plenty of room to invest and support employment in the years ahead.
“The resurgence in positive cases shouldn’t generate significant economic damage”
Rising global inflation As inflation balloons beyond central bank targets, monetary policy and thinking have been reshaped for the past two years. One of the greatest dangers to global financial markets in 2022 remains the threat of rising inflation. “Supply-side bottlenecks and long delivery lead times are putting upward pressure on prices,” says Kamp, who does not expect the demand and supply mismatch presenting in many countries
and industries to ease overnight. However, the good news is that central banks in the European Union, United Kingdom and the United States view today’s inflation pressures as temporary or transitory in nature. There is a risk of an inflation blow-out in the US if policymakers get things wrong, but Kamp notes that the US Fed has acted prudently to date. “Inflation of around 2.5% is expected in the long term, which should be consistent with sustainable fiscal policy in the US; but asset managers will have to keep a close watch on what the Fed does over the course of 2022,” he says.
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Arthur Kamp Chief economist at Sanlam Investments
