Global economies are responding to the new radical transformation in corporate operations and the entire investment planning environment. In that regard, the pandemic’s negative consequences have resulted in a severe breakdown of relationships across nearly all alternative investment options.
Nowadays, businesses seem to no longer match university academic age economic principles, from US Treasury rates to risk assets such as shares and indices. Even as the independence of the central bank is being disputed around the world, the amount of debate surrounding the “natural rate of interest” has spawned a broad spectrum of diverging perspectives on the subject.
While some claim that the central bank signals are causing the decrease in the natural rate of interest, other advocates of this theoretical framework suggest that it is necessary to look beyond the extraordinary central bank stimulus and modify the other socioeconomic parameters to correspond with the new normal.
The year 2021 turned out to be quite a good mix of outcomes. Not only have risk assets such as indices and cryptocurrencies surged, but the dollar also has performed well as markets absorb the upcoming interest rate hiking cycle led by the US Fed. On that note, here are some of the key investment strategy themes for 2022 to look out for.
Inflation Is Taking The Route Of Minimal Resistance
These days, the core inflation in the United States has reached a four-decade high. The same is true for other big producer economies, such as Germany and China, where even primary supplier prices have skyrocketed. The entire narrative around the inflation spike being fleeting is succumbing to stubborn inflation that will last at least a year.
The judgment as to whether we are back to the period of wage stagnation that began in the 1970s. The cautionary lesson here is that even if inflation persists, will end consumer income levels grow in unison with the inflationary spiral? G4 nations releasing trillions in the type of bond purchases and other measures will very certainly turn out to be the far more lethal specter that will follow them for a long time. For that reason, be mindful of inflation, if you’re about to carry out the investment of your lifetime.
Avoiding Excessive Leveraged Debt
The latest catastrophe from China’s Evergrande incident has revealed the systemic vulnerabilities that arise as a result of excessive debt and an unchecked fiscal expenditure frenzy. As global central banks normalize their exchange rate levels and financial statement size, the general decrease in liquidity from last year’s highs will almost inevitably lead to fresh bouts of risk-off selling. Investors would be wise to avoid high yield and junk-rated debt.
The Shift To ESG Won’t Be Smooth
The continuing energy crisis has brought to light the consequences of underinvestment in the conventional fossil fuel sector. Whereas the finger-pointing among OPEC and the top four energy-consuming blocs (the United States, China, Japan, and India) is likely to be even worse than a gambling game, the need for long-term investments in energy sources such as coal, petroleum products, and other alternatives is urgent. Any thorough transition to a renewable energy cycle cannot occur at the expense of the end customer spending more money than is necessary.
Cryptos Will Very Certainly Get The Final Laugh
This year, cryptocurrency as a concept has seen enormous use cases and investment planning acceptance. Traditional doubters of this technology are suddenly hopping on board and trumpeting the advantages of adopting cryptos and bitcoin technologies in everyday life.
While volatility will continue to be the most prominent aspect in the next year, cryptos as a financial investment product will likely gain traction with hitherto untapped key market forces. For example, large banking and financial firms are suddenly realizing the need of providing crypto services in order to stay ahead of the adoption curve. Big players are offering crypto investment services to their clients, and even governments are looking at cryptocurrencies as an option for keeping their economies stable.
Diversity – An Urgent Demand
With the Federal Reserve System expected to raise interest rates sometime next year, most of the market’s attention and emphasis will be on a wide range of skills names in the investing area, especially good value US shares.
With the breakdown of correlation across many asset classes, investors would be wise to maintain a balanced mix of not only shares and bonds in their portfolio but also to hunt for safe havens and new developing fads such as cryptocurrency.
To Summarize
The world needs alternative platforms for an economy that has gone from boom to bust over the past decade. It is important to keep in mind that we are already experiencing dramatic changes, in the US and abroad. The question becomes, who will lead the way? By 2023, the investment themes of today will be challenged by a new paradigm for wealth creation and delivery. New ways to invest that were once unthinkable could likely become very popular in just a short time period.