Webinar: Market review and the year ahead

2022: another year of robust economic growth

• Consumer spending – a key driver of the global economy – will remain strong, fuelled by pent-up demand and savings accumulated during the pandemic.

• Companies are set to increase spending this year, as they rebuild depleted inventories and invest in new plant and equipment.

• Governments will provide less of a boost to demand than in 2021, as pandemic support schemes come to an end.

Interest rates to rise, and inflation moderate, over the course of the year

• Inflation is unlikely to return to the very low levels that we saw before the pandemic.

• Markets are now pricing in four interest rate increases in the US. We are sceptical that we will see this many.

• In the UK, the BoE is expected to raise interest rates again in February and then pause as the economy digests the impact of a planned increase in National Insurance.

What are we doing in client portfolios?

• We are modestly “overweight” equities. We expect to see continued growth in the global economy and corporate earnings, both of which should support share prices. Equities tend to perform well when inflation is falling from high levels, as we expect to be the case this year. However, as growth slows from last year, we are more likely to experience corrections along the way.

• As interest rates rise, we could well see “value” stocks (which have a lower valuation than the broader market) outperform “growth” stocks (which are growing faster than the broader market). This suggests that stock markets outside the US could finally start to outperform the US, which has a greater bias towards growth sectors. We have significant exposure to both value sectors and non-US equities.

• We prefer alternative investments to fixed income and have recently increased our exposure to commodities. When interest rates are rising, commodities actually tend to act as a better inflation hedge than inflation-linked bonds. There are other reasons why we like commodities. Demand for industrial metals is increasing as a result of the energy transition. Commodities could also help protect portfolios from a spike in energy prices resulting from geopolitical tensions.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

James Brennan

Portfolio Director