Schroders expects healthy global economic growth although inflation poses a challenge


Schroders believes the global economy is entering into an economic expansion phase in 2022, during which we will see continued positive growth, albeit at a slower pace. Coupled with rising inflation as demand for goods remains strong amid supply chain bottlenecks, the global economy could be heading towards stagflation.

Investors will need to manage their expectations for equity returns, particularly as the base effects caused by the pandemic begin to fade and markets may become more volatile in the months ahead. In addition, central banks of developed economies have indicated tightening of monetary policies. As the growth momentum of cyclicals begins to slow and global liquidity plateaus, investors should be prepared to face increased volatilities across various asset classes.

Keiko Kondo, Head of Multi-asset Investments, Asia, Schroders, said:

“We expect corporate earnings expectations to ease but remain supportive in 2022, which may yet sustain equity markets. On the other hand, we remain cautious on government bonds as bond yields may see upward pressure from the combination of rising inflation and real yields. Consistent with this view, we find the financial sector as being better positioned within equities to withstand an environment of higher bond yields.”

“We would also expect commodities to perform well, particularly oil as demand normalizes and supply remains well managed. Accordingly, we find global energy equities particularly interesting. The sector has lagged the oil rebound so far in 2021 and is now screening as extremely cheap, while we are encouraged by their preference for shareholder-friendly actions over capital expenditure.”

"Although fossil fuel use will be gradually replaced by renewables, greenhouse gas emissions will remain a by-product of economic activity in the medium term. Political pressure on climate change is growing rapidly and ‘cap and trade’ carbon markets are seen as a key mechanism to curb emissions. Accordingly, we expect carbon allowances to benefit from the accelerating political pressure, alongside the attractive diversification benefits they offer relative to other asset classes.”

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