The accelerating shift in the policy of central banks eager to tame spiraling inflation is the biggest downside risk for global stocks next year, according to an unofficial survey conducted by Bloomberg Agency for fund managers and viewed by Al Arabiya.net.
With the post-pandemic recovery past its peak, this month’s poll of 106 investors showed expectations that value stocks would outperform stocks that rose this year according to future growth expectations.
While the risks lie, more than 40% of respondents identified a more robust economic expansion as the main catalyst for the upside for 2022.
Katie Koch, co-head of core equity for Goldman Sachs Asset Management, which oversees about $2 trillion in assets, said one of the best opportunities she sees is small businesses in the US, because they allow “to learn about the next generation of Innovators and innovators through attractive comparative ratings.
After the fierce rise this year that pushed US and European indices to successive record levels, after seven consecutive quarters of gains, sentiment has been souring recently, with major indices tumbling this week due to fears that record jumps in producer and consumer prices will increase pressure on central banks to put pressure on the brakes. more strongly.
The results of the Bloomberg survey are in line with the latest survey by Bank of America, of global fund managers, which showed that hawkish central banks are seen as the biggest risk to the recovery of stock markets since May 2018, followed by inflation, and the return of the Corona virus.
As investors prepare for the major policy meetings of the Federal Reserve, the European Central Bank and the Bank of England this week, which may provide clarification on the pace of monetary tightening and the easing of stimulus measures.
Negative risk
As chief market strategist at Barclays Private, Julian Lafarge, emphasized: “One of the biggest risks will be an excessive tightening of monetary conditions, especially at a time when the conditions have been met to cancel emergency measures.”
Concerns about monetary tightening outweigh other risks, including a possible new outbreak of the epidemic, a slowdown in China, or geopolitical tensions. However, this does not mean that they are far from the radar.
For some asset managers, the general exuberance in the market itself is dangerous. “Actually we are in a big bubble, and the most extreme signs of speculation are in cryptocurrencies, SPACs and the general rush of IPOs,” said Alasdair MacKinnon, principal manager of the Scottish Investment Fund, which oversees about $890 billion in assets.
inflation threshold
Although it is agreed that inflation is a risk, determining the level at which it becomes a threat to the stock market is more difficult. For most respondents to a Bloomberg survey, the problem begins when annual growth in US consumer prices remains above 3%. However, nearly 20% said it would not derail equities until inflation held above 5%.
Some argue that the impact of the bond market will be more significant, as many strategists expect that interest rates will not keep pace with increases in inflation, which means that real returns on inflation-adjusted bonds will remain too low to make them an investable alternative to stocks.
“As long as central banks set a limit on nominal rates, and real rates remain very low, there is no substitute for equities,” said Pascal Blanc, chief investment officer at Amundi, Europe’s largest asset manager managing around $2 trillion.
According to Planck, the Fed and the European Central Bank will not tolerate inflation rising above 4%-4.5% in 2022.
Goldman Sachs Asset Management’s head of core equity portfolio management, Luke Pars, believes that a strong economic recovery will support continued growth in equity markets even though inflation and interest rates could start to rise during 2022.
Where are they investing next year?
According to the survey results, it’s finally time to look at the cheaper stocks called value stocks, with 24% saying this is their best pick for 2022. Respondents in Europe also cited opportunities in small businesses, while Pictet Wealth Management’s investment officer cited César Perez-Ruiz, who oversees about $275 billion, said his bet is on companies with pricing power that can withstand inflation.
For his part, Chief Economist at Mazars Wealth Management, Jorge Lagarias, noted the transition to a low-carbon and more sustainable economy. “It is no exaggeration to say that the massive amount of money institutionally directed towards sustainability, not to mention the wall of regulations, is enough to make most other investment topics marginal,” he said.
As for geographic choices, respondents tended to favor their region: Europeans overwhelmingly look at European stocks, while US investors are more confident about US stocks and Asia-based responses are less pessimistic about China.
Kevin Thosett, a member of the Carminiac investment committee that oversees about $46 billion, says the area where valuations look most attractive is emerging markets.
