Four obstacles to the global economy in 2022
The global economic slowdown is expected to deepen next year due to four obstacles: the fifth wave of COVID-19, the rise in food and energy prices, the slowdown in the Chinese real estate sector and the monetary tightening in emerging markets and English-speaking countries.
The US economy is less vulnerable to these factors and will therefore intensify its inflationary dissociation from the rest of the world.
While the Fed cannot afford to be patient, the onset of monetary normalization will bring new risks to financial markets, given the demanding valuations of domestic assets.
The European economy is experiencing rising energy import bills and reliance on global manufacturing supply chains, which continue to be affected by the pandemic. However, unlike the United States, it will benefit from the positive fiscal stimulus associated with the NGEU plan.
Considering the ongoing adjustment of your real estate sector, China continues to need to export at a sustained pace to maintain adequate GDP growth. Therefore, Beijing will continue to slow the appreciation of the yuan by accumulating assets denominated in foreign currencies. These assets will be recycled, to a large extent, in the US Treasury bill market, thus slowing the Fed’s monetary normalization efforts. China will come under pressure from the United States to implement a more ambitious stimulus policy during 2022.
Allocation and investment strategy
In the area of ââequities, we focus on long-term growth companies with good visibilitythat is, they are not excessively dependent on the business cycle and are able to transfer cost-induced inflation without reducing their activity.
In reference to fixed rentWe selectively seek corporate bonds with attractive yields and whose business models have not been severely affected. This is a necessary characteristic in a context of abundant liquidity and few pricing mechanisms.
For its part, emerging markets offer interesting niches (both in the fixed income and equity markets) to have suffered from orthodox policies applied in China, as well as inflation and the outlook for normalization of US monetary policy.
We have gone from the situation of âinfinite quantitative easingâ and âlower rates for longerâ of a year ago to one of rapid and widespread interest rate hikes around the world. The different economic situation in the different economic blocks requires the application of heterogeneous approaches.
Investors could take on a high degree of credit risk in exchange for a real return close to 0%. This abundant liquidity, coupled with an environment of severe financial repression, means that the pricing mechanism is no longer functioning as in the past. The resulting inefficiencies are positive for active management professionals.
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