Josep Soler Albertí
Chairman, FECIF Advisory Committee and CEO, EFPA Spain
Thirteen clues to investment in 2022
We could cite less than 13, or even more clues, but it must be said that, contrary to what some people think, investment will not be driven by good or bad luck, but by a set of economic and political forces. If these converge globally in a positive way, it will be a good year but, on the other hand, if they get worse, it will be a year to forget from the point of view of investors. Let us discuss the 13 clues that we think are most relevant for this New Year.
1) Will we continue in a pandemic? The last month of 2021 may determine whether the sixth wave will take root and close part of the European economy or whether we will overcome it. We will also soon know whether the Omicron variant is as dangerous as the markets interpreted when they received the South African report. Once again, the evolution of the pandemic and vaccination will undoubtedly be the most important element for investors to follow.
2) Temporary or structural inflation? Too many people, too quickly underestimated the first warnings of inflation that would (or would not) result from a return to normal post-pandemic economic activity. Had we forgotten what price growth is and how it works? We still do not know which part is conjunctural and which is structural, but there is no shortage of reasons to be concerned and alert. Inflation, like Covid, is highly contagious and negative for the economy and investment.
3) Can some of the European economies lag behind in recovery? This will be true if we look at the reductions in the forecasts from some agencies. This could again penalise European financial market indicators.
4) Political tensions and a possible black swan? We know that investment requires stability, and uncertainty could be caused, above all, by political and geostrategic tensions in various parts of the world. A black swan or a more predictable event may appear to generate enough tension to get things wrong. Watch out!
5) European funds and their appropriate use. Needless to say, some countries, especially in the south, are highly dependent on European funds to ensure recovery. In addition, these European funds are very much dependent on whether the reforms demanded by Europe are carried out and whether they are used properly. There is no good news coming from some of the recipient countries.
6) Over-indebtedness and public deficit bubbles. We already had a heavy backpack before the Covid crisis and now the bubbles are huge. Will we be able to reduce them from here on? Alternatively, will they blow us away and, by the way, the economy?
7) Improving or worsening public pensions’ reform. We should start, someday, to accept the need for in-depth reform of many pension systems. We should confirm this in 2022 because the system will not stand without a dose of reformist courage that we have not yet perceived, even though it is the number one problem of an aging, low-productivity continent.
8) Match future trends. Now we come to the issues where we, the advisors, have a lot to say. How to choose the sectors and trends that will really grow and make money in the coming years. Will we be able to understand the changes that the crisis has accelerated? Will we be able to get out of nearly extinct activities?
9) Will technology keep its stock exchange dominance? The big tech companies have obtained a majority share of the stock market capital gains of the last 10 years. The portfolio results have been divided between those with formidable gains when there were established technologies in them, and those with modest performances when big techs were not part of them. Will it continue like this?
10) Sustainable Finance and ESG. All indications are that it is necessary to introduce ESG into investment portfolios and in a decisive way. The problem is greenwashing or the risk of green not being green.
11) Risk-free investment. If we have not already done so, we must overcome the idea that risk-free investment is possible with the current interest rates and, worse, with inflation. Hundreds of billions of Euros of savings from European households in current and fixed income accounts are losing purchasing power right now. If this is really a "risk free" investment …
12) Taxes. A highly valued temptation today by public administrations is to combat the public deficit by creating and raising taxes. They show very little confidence in what is really important which is the increase in revenues that are automatically generated when economic activity grows and, without hurting the recovery, a clear condition to keep stock markets rising.
13) Trading and cryptocurrencies. They have so far been a parallel world where speculation has replaced real investment. Not only is this a short-term affair, but it is also becoming a very serious gambling problem among young people. Governments prefer looking the other way.