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.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 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. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.