Investment insights for the new year
We’ve gathered a few key insights regarding the major risks surrounding continued market volatility for 2022 and beyond, along with a few positive perspectives on what to expect in 2022.
As we kick off 2022, the team at Plenti has a few key insights regarding what we anticipate the market to look like, what risks will be in place and what growth opportunities may exist. Please keep in mind, the information contained in this article should not be taken as financial product advice and has been prepared as general information only without consideration for your particular investment objectives, financial circumstances or needs.
With that cleared up, let’s dive in and hear from Plenti’s Head of Funding, Paolo Luzzani about what he expects for the year:
In 2022, we expect markets to remain volatile overall. This, of course, can be both a positive and a negative, depending on your position and perspective. The main risks we anticipate seeing include:
- Central banks tightening monetary policy at a faster pace than expected. After many years of extremely accommodative policy with interest rates near zero, investors will have to start to factor in rising interest rates. The tapering of large amount of stimulus provided by the central banks via quantitative easing programs could also cause some volatility particularly in bond markets.
- Inflation, which is a key macro variable worth watching closely. Inflation has recently risen to levels not seen for decades. Whilst initially the consensus was that the spike was only temporary (caused by supply chain disruptions caused by the pandemic), most economists are actually expecting the effects to last longer. Any further spikes to inflation, or even if it were to remain at these elevated levels, could mean that the central banks would have to accelerate their pace of tightening monetary policy.
- Rising interest rates, which are likely to have a negative impact on one of the most loved asset classes by Australian investors: residential property. It’s unlikely we’ll see house prices experiencing similar growth in 2022, compared to what we’ve seen over the past two years.
- The ongoing impact of COVID-19 and potential new variants of the virus, similar to what has happened over the past few weeks with Omicron. New variants could mean health systems under pressure, further lockdowns and related impact on the economy and markets.
On a more positive note, we expect the real economies to continue to recover in 2022, given the strong demand for varying products and services, which has built up over the past two years. In addition, we expect unemployment rates to continue improving. In an environment of volatile markets, Paolo says, “I would be thinking more about increasing exposure, still in the context of a well-diversified portfolio, to financial products which are as closely linked to the real economy as possible, provide a regular income stream and are not linked to markets and their volatility.”
Financial investments are inherently risky. Read about risk management through the Plenti Provision Fund here.
