Macquarie Asset Management has published its Outlook 2022, sharing perspectives on the key themes set to shape the investment landscape and performance of key asset classes in the year ahead.
Reflecting on the significant changes brought about by the COVID-19 pandemic, Macquarie explores the impacts that a changed macroeconomic regime may have on the global economy. The paper also outlines Macquarie Asset Management’s expectations for continued strong global growth in 2022, and the view that developed world inflation will peak as ongoing demand and supply mismatches across the economy are resolved but remain elevated through the year.
“Through these unpredictable times, we remain ‘stubbornly optimistic’,” said Ben Way, Group Head of Macquarie Asset Management. “For 2022, we believe it will be a year where global growth is again strong, although there is likely to be some softness early in the year due to the Omicron variant. Inflation should peak around mid-year, but in our view is likely to remain above central bank targets all year, keeping inflation concerns front and centre for investors and policymakers alike. It will also be a year of synchronised tightening of monetary policy and further rapid progress on the energy transition.”
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Examining the lasting effects of the pandemic, Macquarie Asset Management puts forward the view that a slowing down of globalisation, tougher policy choices, relatively strong wage growth, and bigger government will define the post-pandemic era.
“In our view, the world economy has been in one ‘macroeconomic regime’ since the fall of the Berlin Wall in 1989,” said Daniel McCormack, Senior Economist at Macquarie Asset Management. “The globalisation process this unleashed, and specifically the successive positive labour supply shocks combined with a monetary policy framework focused on inflation targeting, has resulted in steady downward pressure on interest rates, both short- and long-term. This, in turn, has fuelled rapid growth in debt, asset values and the financial sector.”
“They have also contributed to a number of challenges the world currently faces, including increased income and wealth inequality, climate change, and weak growth in real incomes for some cohorts. Layered on top of these challenges is COVID-19, which was a profound event that, in our view, future historians may well identify as the point at which this macroeconomic regime changed.”
Global equity markets: Pushing through
After performing strongly in 2021, equities may face headwinds, but Macquarie Asset Management believes opportunities in the asset class remain compelling this year. However, stretched valuations in some sections of the market, ongoing inflation, supply chain pressures, and slowing growth in markets such as China, present uncertainty according to John Leonard, Global Head of Equities at Macquarie Asset Management.
Leonard, however, remains optimistic. “Despite all the challenges facing the political and economic systems globally, we continue to believe that there are few, if any, assets that look as compelling as equities right now … we think in current conditions, equities offer a decent combination of transparency, liquidity, and growth potential.”
Fixed income: Navigating a tale of two tapers
Despite the massive shock and uncertainty caused by COVID-19, with soaring inflation, global bond yields remain at low levels and credit spreads remain tight. The demand for yield, which has defined the asset class in recent years, may be tested as unprecedented fiscal stimulus turns into fiscal drag and monetary policy support is gradually reduced, according to Brett Lewthwaite, Chief Investment Officer and Global Head of Fixed Income at Macquarie Asset Management.
“While 2022 should see the recovery continue, it’s the recovery to what that matters,” Lewthwaite adds. “Getting back to the pre-pandemic trend of growth simply maintains the investment climate, particularly if supply chains gradually realign.”
Real Assets: Tailwinds continue
Expectations for strong GDP growth and inflation are expected to act as tailwinds for infrastructure and real estate, after a year in which both asset classes demonstrated both resilience and outperformance. For Daniel McCormack, real estate’s fundamentals remain healthy, with sectors such as industrial, rental housing, and prime office properties expected to perform in 2022. Despite experiencing volatility at the beginning of 2021, strong returns and recovering deal activity since offer promise for 2022 in the infrastructure sector.
“Looking ahead to 2022, macroeconomic conditions are likely to be supportive of further healthy return performance,” said McCormack. “For both asset classes, GDP growth and inflation are key drivers of returns and with the IMF expecting 4.9% global GDP growth this year and 3.8% inflation these two key variables are likely to remain a tailwind for both asset classes.”
