According to the World Bank Group, global growth is expected to decelerate from 5.5% in 2021 to 4.1% in 2022 and 3.2% in 2023 as "pent-up demand dissipates and as fiscal and monetary support is unwound across the world".
Investec’s chief investment strategist, Chris Holdsworth, says: "While we believe that forecasts are on the low side, investors will need to think differently about investing in 2022 as global growth loses the momentum experienced over the previous two years."
Risks such as tapering, interest rate hikes, policy uncertainty, record global debt and rising inflation will all weigh on global markets.
"The biggest risk facing the global economy is arguably inflation and whether this is a transient or longer-term trend," says Sonja Saunderson, chief investment officer at Momentum Investments.
She says higher inflation will prompt central banks to raise interest rates and withdraw excess liquidity from markets through quantitative easing and asset purchases.
"After years of loose monetary policy, markets have become accustomed to easy access to money," says Saunderson. "We’ll need to see if we can wean markets off this policy and if interest rate increases will undo the growth momentum to which markets have become accustomed."
Additional risks highlighted by Saunderson relate to the ongoing effect of Covid, vaccination rates and possible new variants.
"The impact of work-from-home and determining whether the ‘great resignation’ is an American and developed economy phenomena or is more broad are additional factors for investors to consider."
Carla de Waal, head of multimanagement and manager selection at FNB Wealth & Investments, says volatility will probably stay high in 2022, but ample opportunities will emerge for "skilled fund managers to deliver alpha for clients".
Diversification remains one of the best ways to approach uncertain markets, she says.
"Offshore investments often offer great diversification benefits. Multimanagers utilise these exposures extensively in their funds, or they allow selected managers to apply offshore investments in their mandates."
From a geographic diversification perspective, Holdsworth believes that developed markets, including the US, will offer good growth opportunities above 4%, despite the risks.
"We don’t believe there is a risk of recession in the US. Investors should expect lower returns, but we don’t expect a massive correction."
But with the US market trading on a forward multiple of 20, even after it was derated, Holdsworth sees better growth opportunities in Europe.
"With Europe trading at a forward multiple of less than 15, with faster growth expected in the region due to the European Central Bank’s less aggressive interest rate hiking stance, indices in the EU will likely outperform those in the US."
Radhesen Naidoo, head of client servicing in SA for Orbis, believes good opportunities exist in Europe, the UK, Japan and emerging markets.
"Importantly, investors should remain selective given the divergences in valuations."
More specifically, Naidoo believes emerging markets look attractive on a long-term valuation measure and may provide fertile hunting grounds for contrarian investors.
"However, we care more about specific opportunities, not the broader ground."
Among emerging markets, China remains an attractive investment destination, despite government intervention in key economic sectors.
"The Chinese government is imposing its own view on the country’s industrial economy, which has served as a key economic driver recently, while trying to reduce the heat in hot sectors such as technology," says Holdsworth.
However, strong fundamentals continue to drive economic growth in the country.
"China’s lower inflation rate compared to the US surprised on the downside at below 2%. This creates more opportunities for the Chinese central bank to provide stimulus, which can drive growth."
In addition, sustained global demand for commodities amid rising global production levels and environmental, social, and governance considerations will continue to drive up commodity prices, benefiting export markets such as China.
When selecting sectors, Reyneke van Wyk, partner and head of investment management SA at Stonehage Fleming, highlights important structural growth themes.
"The mega-trends shaping the global economy include automation, medical innovation, the digital age and sustainability," says Van Wyk, adding that most of these trends were under way before the pandemic but the pace of change has arguably accelerated because of Covid.
"These trends cut across sectors but we expect them to support superior earnings growth for companies swimming with the tide and driving the change."
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.