Quarterly investment letter | 1st quarter 2022
Here’s our summary of the markets
Global GDP growth is expected to reach 4.4% in 2022, with central banks likely remaining cautious about tightening too quickly. The new Omicron variant is highly contagious and should delay the recovery process in some sectors, but it is unlikely to derail the global economy.
In the United States, the case for spending remains intact, and GDP growth is expected to reach 3.9% in 2022. Investors should focus on two predominant factors: unemployment and inflation. If long-term inflation expectations remain well anchored, the US Federal Reserve will not be in a hurry to hike rates.
Europe faces obstacles to growth in the near-term growth due to high energy costs and Omicron countermeasures. For lagging European equities to outperform US equities and close the valuation gap, growth in Europe would need to exceed expectations.
Emerging markets suffer from negative headlines out of China about property sector defaults and the government’s moderate stimulus measures. A smaller stimulus, slower construction activity, and a stronger US dollar would negatively impact emerging markets in the short term.
Conclusion: While many factors could cause market jitters, the underlying global growth picture is likely to continue. In the absence of a sustained decline in corporate earnings and more hawkish central banks, equities and higher risk credit remain preferable to high-quality, long-duration bonds. November has shown that investors are still “buying the dip” in equities. Financial repression should continue, and yields will likely remain negative (inflation-adjusted) in most bond segments.
Don’t miss our complete 1st quarter 2022 investment letter, which includes a more detailed look at the regional macro-economic backdrop, market consensus forecasts, and more.
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