Националните пристрастия в инвестициите, анализ на Ивайло Томов, изпълнителен директор на София Интернешънъл Секюритиз
Global Markets Outlook 2022
Market focus to shift from COVID19 to inflation ahead of strong economic expectations for 2022. Monetary policies across the world remain largely unpredictable as central banks’ targets may promptly change from labour market to inflation. For 2022 we find great potential in the Defensive stocks in Developed markets, and in particular – the Consumer Staples sector, thanks to its pricing power and Healthcare, still driven by the coronavirus effect.
Summarized, 2022 will likely be characterized by the following 3 traits:
- Extended growth
- Fears for increased inflation
- Improving labor market
1. Growth continues
Though the fastest economic growth for the past half-century is behind us, we anticipate another strong year for the global economy, driven by the pent-up savings and cash reserves, eased supply chain issues and continuous medical improvements. The consensus for the global GDP growth is 4.4%, and 4.1% and 4% for US and Eurozone economies respectively. According to the data, the funds from stimulus have not entirely entered the economy which is evident by the high corporate cash holdings and personal savings. Thus, we expect to witness a still relatively high consumption, as well as inventory restocking and a strong CAPEX cycle. On the other hand, half of the world population is fully vaccinated, the number is even higher in the developed countries, the medical improvements which result in fewer deaths signal for diminishing impact from the pandemic. In tandem, these factors will favour the supply chain as the supply will catch up with the demand.
Supply chain nightmares Contrary to popular belief, we insist to emphasize that the combination of increased demand and stalled supply had a far greater impact on supply chain issues than the logistic obstacles caused by the pandemic or various incidents (such as the Suez Canal blockage in the spring). The increased demand (Figure 2), brought by the monetary policies of the Fed and ECB, helped fuel the growth and increase the valuations in a number of sectors.
2. Higher inflation on the horizon
If there is a topic that unites nearly everybody, it is the expectations for higher inflation in 2022. Figure 2 shows that the inflation we currently see can more precisely be classified as demand-pull rather than cost-push one. As mentioned earlier, we expect the aggregate global supply to slowly catch up with the demand which will stabilize the consumer prices. Moreover, we foresee tighter and more aggressive monetary policies in the US coming in early 2022. Considering all of this and the fact that now the CPI index will not be compared to the deflationary 2020, we strongly believe that the inflation pressure will cool down, yet will remain higher than the pre-COVID period.
The forecast for the global inflation rate at the end of 2022 is to reach 3.4%, with a huge difference between Eurozone (2.6%) and the US (3.9%). This could be explained by the overall weaker inflationary pressure in the Eurozone and the much lower wage growth in the area (Figure 4). This also stands as the main rationale behind the differences in the central banks’ monetary policies in the two regions. While it is expected that the Fed will act hawkish and raise the fed funds rate three to four times this year, the ECB is more likely to be dovish until the labour market recovers fully (Figure 5) and tighten the monetary policy beyond 2023.
Such large differences will definitely put great strain on the trade and investments between the US and Europe, which would result in increased pressure on the USD/EUR pair, thus affecting further the inflation and labour market fundamentals on both sides of the Atlantic.
3. Improving labour market
The labour market, as a crucial driver for the steady demand, is increasingly evaluated by investors and analysts. The reason why the EU job market is lagging behind the US in terms of wage growth is because of the better unemployment handling. Thanks to the introduced short-term work scheme in the EU, the labour force shortage effect was not as severely felt as in the US. The unemployment rate is near the pre-COVID levels, yet little uplifted – 3.9% in the US and 7.2% in the EU.
However, there are some 5.5 million workers short in the US compared to the pre-pandemic trend. There is a variety of reasons behind that – on the one hand, people are not willing to vaccinate in order to be employed and, on the other – some prefer to live off the unemployment aids. As health risks and covid monitoring requirements decline in 2022, the vaccination drive will likely decrease, but so will the unemployment aids and as a result, the cumulative effect would be hard to estimate. On a global scale, the unemployment rate will likely fall to 4.9% at the end of the year from nearly 6.4% currently. For the US and Eurozone unemployment, the expectations are at the end of the year to converge to the pre-pandemic levels.
- Equities over Fixed-Income: In an environment of low real rates, the Fixed-Income securities tend to drastically underperform the Equities. Although some central banks plan on hiking the rates, overall, they will remain historically low. Moreover, the strong economic growth and reasonable valuations are also favourable for equities.
- Developed Markets over Emerging Markets: We witness an asymmetrical recovery in the different parts of the world. Developed economies have retrieved to the pre-pandemic levels much faster than the undeveloped ones. Moreover, the emerging economies now face way tighter monetary policies compared to the others, which we believe will be a headwind for the growth of the equities in these regions.
- EU stocks over US stocks: We believe the Eurozone economy still has plenty of room to grow and recover compared to the US. Nevertheless, we expect the corporate earnings in the US to remain strong and superior, but still, the more attractive valuations in the EU outweigh. Additionally, the expected less constricting monetary policy by ECB will add another plus for EU stocks.
- Defensive over Cyclicals: Although the recovery is still ongoing, we estimate that the cyclical stock prices have predominantly reflected the economic rebound. The forward-looking behaviour of the market could mean that it is eyeing a time of economic expansion, where the defensive stocks may outperform the cyclical. Defensive equities with strong pricing power, such as Consumer Staples, will be better off in periods of lifted inflation and the lasting pandemic may favor the Healthcare sector.
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