Photo: This Is Money

Now that 2021 has wrapped up with a few notable global economic trends such as US leading recovery, Europe showing a profit and China still suppressing on top firms, we shall take a look at what to expect in the upcoming year of 2022.

The US: Growth stocks could take a hit from rate hikes

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The US economic recovery will have a major say in our fortunes in 2022, according to Interactive Investor's head of markets Richard Hunter.

"Now that some restrictions were lifted, we can expect some kind of return to normality,' he says, and likens the US experience to that of the UK.

However, he also pointed out that recent supply chain blockages are choking supplies, raw material prices are therefore rising and inflationary pressure is increased.

On the other hand, Ben Yearsley, investment director at Shore Financial Planning says US markets are likely to continue rising. According to Yearslet, the US won’t be the stock market of choice for the next decade despite many of their companies remaining globally dominant.

Europe: High risk posted by inflation

Photo: ForexBooklet

"Europe is entering 2022 with a wave of investment coming and demand has so far been sufficiently robust.", said Martin Skanberg, European equities fund manager at Schroders.

Still, investors still worry about the prospect of higher inflation, higher interest rates, and potentially a very different investment landscape, especially towards the end of the year.

Skanberg doubts that the current rise in Covid infections would cause widespread disruption or to halt the recovery. He forecasts corporate profits in the eurozone to be up 8-9 percent for 2022,'

He believes many companies have been able to raise prices to offset rising costs, which leads to the current strong momentum in shares for the early part of 2022.

This trend will further mergers and acquisitions could add extra impetus.

Inflation and central bank action - or inaction - could build as the year progresses. This is the biggest close-to-home risk that Europe might have to face along with the migrant crisis on the Belarus-EU border.

As for geopolitical risks, Skanberg shared that tensions between the US and China could flare up again.

Sam Morse, portfolio manager at Fidelity European Trust, says: 'Despite the chaos that Covid-19 has caused, there is a natural outcome of 2021 positive trends is that there is now significant optimism priced in to share prices.

'We must also consider the well-documented pressures on supply chains and the inflationary pressures that this is placing on households and businesses.", said Sam.

Asia is the region to watch for 2022

Photo: The Economic Times

The tech and property sectors are dragging Chinese economy

The slumping property sector and slowing external demand are clouding the outlook for the world’s second-largest economy. Guy Foster, chief strategist at Brewin Dolphin, says two factors are currently weighing on China.

According to Foster, one of the weights dragging the Chinese equity market lower is real estate. The sector will likely suffer repeated bad news going into 2022, while more help will be offered to the banking sector to prevent a wider financial crisis.'

Richard Hunter of Interactive Investor added: 'China is still on course to become the world’s largest economy at some point in the next decade. This year has been marred by events such as those at Evergrande in the property sector, slowing economic growth and increased regulation"

Another underperforming sector is Chinese technology companies. Foster reckoned that the long-term outlook is challenging for Chinese tech platforms as they are now expected to contribute towards common prosperity in China.

At the same time, China’s relationship with the US remains a fractious one and any further mutual sanctions will inevitably both dent sentiment and limit increases in the amount of trade between them.

The 2022 Covid recovery bounce of Asian economies

'It feels as if Asia failed to advance in economic development in 2021, with many markets not benefiting from a Covid recovery bounce, with some notable exceptions such as India and Vietnam,' says Ben Yearsley of Shore.

One of the main reasons is due to China’s regulatory crackdown impacting sentiment upon the region. Valuations are also reasonable in many markets,

Nitin Bajaj, portfolio manager at Fidelity Asian Values, says: 'Over the last few years, the valuation differential between large growth stocks and small value stocks had reached an extreme last seen in tech bubble of 1999/2000.

William Ma of Grow Investment Group explains he also sees a continued rally for small and mid-cap stocks for high-end manufacturing and rural agricultural relators in China because the government focuses on maintaining enough support of food supply in China, cited from CNBC.

'Hence, there was an expectation that investors would rotate out of growth stocks and into value names in the hope that value would benefit from an economic recovery, as seen in 2021 in the Asian large-cap segment.

In less than 72 hours, we will enter 2022. It's a time for hope and reflection -- as well as piling into the hottest growth trends and invest wisely.

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