Introduction……
2021 was a strong year for risk assets with a number of markets finishing off the year at or close to their all-time highs. The MSCI World index returned over 20% while the S&P 500 neared an impressive 27%, and Europe 22%. While the UK lagged (+14%), the most significant outliers were Asia and Emerging Markets where a significant appreciation in the Dollar over the past year proved challenging.
Central banks continued their monetary and fiscal support measures enabling economic activity to rebound towards the underlying growth trend. However, there was a marked contrast between goods and services and increased demand for goods, which combined with supply chain disruptions, resulted in a sharp rise in inflation towards the year-end. While vaccine availability helped limit Covid death rates, new variants and recurrent waves of infection accompanied by fresh restrictions impacted services at different stages throughout the year – particularly for hospitality and travel.
As we look towards 2022, risks surrounding inflation, tightening monetary policy, slower growth and continued Covid-related uncertainty have all raised concerns for investors. In this year’s investment outlook, we tackle these central investment themes that define the future path for markets and are critical in determining how to position portfolios for the cycle ahead. While these factors will likely lead to greater volatility for markets, we believe the strong fundamental and supportive policy backdrop for growth and earnings remains intact and should help extend the equity market cycle into 2022, albeit with lower and bumpier returns than we saw in 2021.
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