Life after Covid: Investment markets in 2022

An Aussie based in London, economist Andrew Pease is in charge of the global investment strategy team at Russell Investments. He says 2022 will be a year of moderation not mayhem, which is good news for members.

By Andrew Pease - 3 min 30 sec read

A little about Andrew

Originally from Tasmania, Andrew Pease was an economist at the Reserve Bank of Australia and Chief Economist at JPMorgan Australia before joining Russell Investments in 2006.

In my 30+ years working as an economist and analysing global investment markets, few periods have been as interesting and challenging as the past two years we have experienced with Covid-19.   

For members of the Russell Investments Master Trust, the good news is that around the world economic growth next year will still be good, although probably at a slower rate than in 2021. But this means stock markets should still do well which will help boost your funds.   

We also expect that the rise in prices (inflation) we are all seeing in the shops will eventually ease, though it might still have a bit of a way to go yet. Any upward pressure on interest rates from the actions by the world’s central banks will likely be modest. 

Overall, our view is that we should expect that 2022 will be a year of moderation—moderate economic growth, a moderation in inflation and moderate returns on your super investments. 

As far as COVID-19 risks are concerned, while the success of vaccines and the approval of pills to treat infections have eased the concerns about the pandemic, the new omicron variant does show that these risks can quickly return. 

Pandemic year 3 

This positive outlook means we will likely invest more money in equities rather than bonds for at least the next 12 months, despite the fact the share prices have already risen quite a lot, especially in the U.S. where they have become quite expensive. 

In America, we believe that a slowdown in demand for goods and services from the heady post-lockdown levels of 2021, along with an increase in demand for services rather than actual goods will ease the pressure on prices. An easing in the bottlenecks which have affected the supply of goods to the market should also help, with price rises slowing by the second half of 2022. 

The U.S. central bank will help by likely not hiking interest rates before 2023. 

Europe’s outlook to brighten 

In Europe, we are expecting healthy growth across the region despite the recent pick up in lockdowns linked to surging covid infections, mainly because government spending is still playing a big role in supporting the economy. This should mean shares prices for companies in the European Union will do better than U.S stocks in the coming year. 

In the UK, labour shortages are still putting upward pressure on wages and prices in the shops making it more likely the Bank of England will have to raise interest rates soon, maybe in February. 

The main UK share index, the FTSE 100, is the cheapest of the major developed equity markets in late 2021, and British companies are still paying good dividends, so we think this is a good market to invest in over the next few years. 

China set for improvement in growth 

China is important for Australia’s economy, but also impacts the economic and trading environment of countries around the world—many of which form part of Russell Investments’ global investment strategy. The economy in China has recently been affected by problems among its giant residential property developers. It’s a bit hard to tell how this will affect the broader economy but we think it does mean the government will provide some stimulus in 2022 to help. This should help the economy slowly improve in 2022. 

We believe that in Japan things won’t change very much next year. There is likely to be some upward pressure on prices because imported goods will be more expensive, as they are elsewhere in the world. However, this is unlikely to concern the Bank of Japan too much and it will probably be slower than other central banks in raising interest rates. 

Australia slowly returns to normal 

In Australia, the economy is set to pick up in 2022 as the country slowly opens back up following the 2021 lockdowns. While bruised, consumers and businesses have emerged from the pandemic with healthy savings levels which should help the recovery. 

As Australia has not seen the same wage pressures as some other economies, we don’t think the Reserve Bank of Australia will raise rates at all in 2022 which will be a relief for every Australian holding a mortgage. 

Our analysis of these global market trends is used by the investment team at Russell Investments to guide our selection of the specialist fund managers and strategies that are put to work for your super. This ensures you get the same highly rated, award-winning global investment expertise as many of the world’s largest investors.  

If you’d like more detail on how Russell Investments views global investment markets, please check out our Global Market Outlook

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