Just when investors thought they could pause to take stock of the effects of the coronavirus pandemic and unprecedented measures to alleviate its impact, market watchers are warning that 2022 will bring yet another year of uncertainty.
"2022 is unusual because, for me, it will reveal the post-pandemic regime that we're in," said John Roe, head of multiasset funds in London at Legal & General Investment Management Ltd., which had £1.33 trillion ($1.84 trillion) in AUM as of June 30. The world has faced a "massive global shock and non-standard policy," which resulted in a huge rebound: The S&P 500 index finished 2021 up almost 29%, building on a return of 16.3% in 2020 — a huge recovery from the 35% decline from the start of 2020 to March 23, 2020.
"Economics is always drawn on bits of paper with lines, but in reality, it is a multidimensional, fluid system. When you punch that system really hard, you can change" it, Mr. Roe said. The immediate rebound in the economy will have masked the true impact, but as that effect fades, the economic scars will become clear. "That's what I think is so uncertain for 2022," Mr. Roe said.
Sources in general agreed on two points: the first is that 2022 will bring another year of positive global GDP growth — albeit at a slower pace than in recent years. Forecasts ranged from 4% to 5% for 2022. That compares to an estimated 5.9% in world output for 2021, according to an October projection by the International Monetary Fund. The second is that this growth is subject to a number of potential threats: COVID-19 itself is still at the top of economists' risk lists thanks to the unknowns around the latest omicron variant. There are also uncertainties over the path and pace of central bank policy moves, a no-longer-transitory inflation problem and a number of elections across the globe.
"We do think 2022 is going to be another year of above-trend global growth, but also another year (of above-trend) inflation," said David Riley, London-based chief investment strategist at BlueBay Asset Management LLP. "It is going to be an inflection point because we are now seeing tightening in global monetary policy," while inflation will remain a persistent problem in the U.S.
That adds up to "this tug of war between what will still look like a good or solid economy recovery (and) decent corporate earnings, but on the other hand tightening in liquidity (and) global monetary policy — most importantly the (Federal Reserve) — and valuations are quite stretched. There's not a lot of (space to move) if we get some bad news," Mr. Riley said. Bad news could come from COVID-19, a sharper-than-anticipated slowdown in China, "or some other shock that might happen." BlueBay had more than $80 billion in AUM as of Sept. 30.