Preferred stocks over fixed income

EQUITIES remain a preferred asset class among global fund managers for 2022 in anticipation of higher inflation, low real returns and relatively stronger growth.

Fixed income investments, on the other hand, are viewed with caution by most in a difficult environment.

In its vision for global asset allocation 2022, RHB Investment Bank says the group maintains its “overweight” position on equities, its “market weight” on fixed income and its “underweight” on cash.

In global equities, the investment bank maintains the United States as its top investment destination; he expects emerging markets to continue to underperform the United States over the coming year.

“In the US market, we continue to favor large cap growth over value. In Asia, our main investment idea is to reduce exposure to China during any rally and use these funds to allocate it to Indian equities, ”notes RHB Investment Bank in its report.

Boost at the reopening

The macroeconomic backdrop is positive for equities, according to BlackRock Investment Institute.

In its Global Outlook 2022 report, the global fund manager says he sees 2022 as the herald of a new regime by generating global equity gains and bond losses for a second year.

“We are seeing another year of positive stock returns coupled with a year of decline for bonds. The powerful rebound in economic activity will be delayed, but not derailed by new strains of the virus, in our view, ”said BlackRock.

“Central banks will start to raise rates but will remain more tolerant of inflation. We are seeing inflation settling above pre-Covid trends – we are going to live with inflation, ”he adds.

BlackRock points out that while it favors stocks over fixed income, it has reduced its risk-taking, given the wide range of potential outcomes in 2022.

“We favor equities in the inflationary context of the strong recovery (in economic activity after confinement induced by Covid-19). We favor developed markets (DM) equities over emerging markets (EM) as we are reducing risk slightly amid growing risks for our base scenario, ”he says.

“We are ‘underweight’ DM government bonds – we see yields gradually rising but remaining historically low. We prefer inflation-linked bonds, in part to diversify the portfolio, ”he adds.

Similarly for Credit Suisse, equities are preferred over fixed income securities.

“We expect attractive returns for global equities in 2022, with earnings remaining the main driver. We expect equity segments that have lagged behind the global recovery from the pandemic shock to appear as bright spots alongside industries that benefit from secular growth trends, ”the fund manager said. international in its Investment Outlook 2022 report.

On fixed income, Credit Suisse says government bond yields are likely to generate negative returns in 2022.

“In credit, low spreads – both in the investment grade and in the high yield – will hardly offset the risks of higher returns. In general, we prefer to avoid duration risk, ”he explains.

“We favor euro-zone inflation-indexed bonds and prefer senior loans because of their variable rate characteristics,” he adds.

Overall, Credit Suisse sees 2022 as a year of recovery and transition after the pandemic. Growth, he says, is expected to remain fairly robust and labor markets are expected to tighten.

“A slight increase in real interest rates and persistent – albeit less serious – supply chain problems are risks that could lead to volatility in financial markets and should be carefully watched by policymakers and investors. “, he indicates.

Positive trend

While equity markets are expected to be positive in 2022, returns will be more modest.

In addition, Schroders Investment Management claims that the risks increase as central banks begin to withdraw liquidity.

“We are now entering a more mature phase of the business cycle when growth momentum peaks and central banks begin to withdraw support.

“Against this backdrop, we expect equity returns to be more subdued but still positive, supported by strong corporate earnings,” said Johanna Kyrklund, Chief Investment Officer and Global Head of Multi-Asset Investments at Schroders , in the group’s Outlook 2022 report.

In the equity strategy, Kyrklund says it’s important to identify companies with pricing power, given the risk to profit margins posed by higher input costs and wages.

She stresses that these companies will be in the best position to weather the inflationary storm. “However, we do not yet believe that inflation poses a systemic risk for the markets, as the willingness of central banks to start raising rates in response to inflationary pressures should contain inflation expectations,” he adds. she.

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