Going to other geographies, stocks in Europe (Euro Stoxx 50) exhibited a return in dollars of 11.8%, well below the S&P 500, while those of developed countries as a whole rose 8.0% (MSCI index of developed markets that excludes the US and Canada).
On the emerging markets side, They fell 5.4% (in dollars), partly influenced by events in China throughout this year, while shares in Latin America were the hardest hit, as they concentrated an accumulated loss of 13.7%, the worst within major emerging market regions.
Other assets that were among the winners this year were raw materials, which experienced a yield of 28.6%, explained, in good part, by the rise of 55.1% in the commodities After the global economic reopening, along with supply constraints and the prospect of a cold winter in the Northern Hemisphere, mainly boosted oil and natural gas prices.
On the side of the laggards, fixed income was the main harmed by the rise in interest rates during this year, particularly those of the American Treasury. A benchmark global fixed income index produced by Bloomberg and investment bank Barclays returned -4.8% in 2021, the lowest since 1999, while a US Treasury bond index produced by the The same companies experienced a 2.3% drop in 2021, exhibiting the first negative return since 2013.
Inflation: an underestimated phenomenon in 2021 that could be a (big) problem in 2022
The main factor of pressure on interest rates, inflation, ended up showing more resilience than expected in 2021, pushing central banks, particularly those of developed countries, to change their reaction function. The same factors that drove the raw material prices (economic reopening and supply restrictions, among others) led inflation to a terrain not seen many years ago in different geographies. In the US, inflation in November had a year-on-year increase of 6.8%, the highest since the beginning of 1982, while in the Eurozone it reached the highest level (4.9%) since at least 1997. On the country side emerging, an average year-on-year inflation of the main economies stood at 5.66% in November, the highest figure since the first quarter of 2009.
The persistence of inflation in the US led the Federal Reserve to accelerate the pace of reduction of financial asset purchases at its December meeting, and the asset purchase program is expected to end in March 2022 rather than June 2022, as it was projected in the previous meeting (November). Further, The latest projections provided by the Federal Reserve indicate that its officials expect three increases of 25 basis points in the monetary policy rate in 2022 and three in 2023, something that is already incorporated in the yield curve. The last time the Federal Reserve raised its monetary policy rate was in December 2018.
However, the lack of inflationary convergence in 2022 could lead central banks – mainly in developed countries – to step on the accelerator in terms of monetary policy, something that would have direct consequences for financial conditions and asset prices. Due to inflationary resilience in 2021, fiscal and monetary stimuli appear to have come to an end and tighter financial conditions would become the norm. If inflation does not show signs of convergence, as is expected, the lower tolerance on the part of the central banks of developed countries, and an eventual aggressive stance by them, would tighten global financial conditions and have a direct impact on the prices of financial assets, particularly due to their high valuations (the S&P 500 index is operating with a price / earnings ratio of 23 times, a level seen at the end of 2001).
Investment prospects for next year
The investment outlook for 2022 looks positive, but challenging. Due to the lower inflation tolerance and the high valuations in financial assets, the risks are asymmetric in the face of a resilient behavior of inflation.
Unlike 2021, financial assets will respond more sensitively to signals and actions from major central banks. In this environment, We believe it is convenient to focus on quality financial assets, prioritizing developed market stocks over emerging markets and value stocks over growth stocks.
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Jade International Realty
Within the developed marketsWe suggest looking at geographies other than the US, looking for exposure to Europe and Japan. Within fixed income, the pressure on interest rates will most likely continue, so it is advisable to take exposure in short term bonds (1-3 or 3-5 year maturities depending on the profile and objectives of the reader) and / or with a variable rate, since the latter provide protection in scenarios of increases in interest rates.
Finally, the factors behind the dynamism in raw materials this year – the acceleration in global economic growth due to fiscal and monetary stimuli together with the bottlenecks generated by the economic reopening – should lose momentum in 2022, thus it seems less likely to observe such a robust return in the commodities as in 2021.
[1] Prices until December 27. Returns do not include dividends.
[2] Those companies that have a high growth rate and that usually do not pay dividends since they reinvest them in generating future income; An example of these companies are the technological ones
[3] Companies whose price is below its fundamental value and which, in general, are the ones that usually pay a high dividend
Wealth Management Research – Balanz Capital
Source From: Ambito
