2022 – a list of lists regarding the macro investment outlook

January 12th 2022

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Key Points

  • 2021 saw strong investment returns with low volatility.
  • 2022 is likely to see more constrained returns with increased volatility.
  • Watch: coronavirus and vaccines; inflation; the US mid-term elections; China issues; Russian tensions with Ukraine and the west; & the Australian election.



Despite a wall of worry with coronavirus and inflation, 2021 was a great year for diversified investors, with average balanced growth super funds looking like they have returned around 14%, after just 3.6% in 2020. Balanced growth super fund returns have averaged around 8.5%pa over the last five years, well above inflation and bank deposit rates.


2022 outlook 1
Source: Mercer Investment Consulting, Morningstar, AMP


But can strong returns continue? Here is a simple point form summary of key insights and views on the investment outlook.


Six things that went wrong in 2021


But there were three big positives

As a result, global growth is estimated to have been nearly 6% and this drove strong profit growth and along with low rates saw strong returns from shares and other growth assets offsetting losses in bonds.

Four lessons from 2021

  • Inflation is not dead – a surge in money supply under the right circumstances, in this case massive fiscal stimulus and supply shortages, can still boost inflation.
  • Shares climb a wall of worry – particularly if earnings are rising and interest rates are low/monetary policy is easy.
  • Timing market moves is hard and the key is to have a well-diversified portfolio – despite lots of worries share markets overall surprised with their strength but some share markets (eg in Asia missed out) and bonds performed poorly.
  • Turn down the noise – investors are getting bombarded with irrelevant, low quality and conflicting information which confuses and adds to uncertainty. So, the best approach is to turn down the noise and stick to a long-term strategy.


Seven reasons for optimism on economic growth

Global growth is likely to slow this year but to a still strong 5% with Australian growth of around 4%, despite the Omicron wave resulting in a brief set back in the March quarter. We have revised down our March quarter Australian GDP forecast by 1% to 0.6%, but revised up subsequent quarters by the same.

Four reasons for optimism regarding coronavirus

The current situation is quite worrying. Global and Australian coronavirus cases have surged over the last month. Australia managed the first 22 months of the pandemic highly effectively with a suppression strategy that minimised deaths and supported the economy. Following the further relaxation of restrictions since November, significant pressure has been placed on the health system. Overseas experience showed a reopening rebound in Delta cases in even highly vaccinated countries (eg, Singapore). And the Omicron variant arrived in late November with clear evidence it was far more transmissible than Delta. All at a time when much of the population has yet to have a booster shot. The end result looks like being another hit to the economic recovery in the current quarter as people self-regulate to avoid covid or have to isolate. However, each covid wave seems to be having a smaller negative economic impact. More fundamentally, despite the short-term uncertainty there are four reasons for optimism regarding coronavirus:
  • Vaccines are still providing protection against serious illness – particularly once booster shots are administered.
  • New coronavirus treatments are on the way which will aid in the treatment of the more vulnerable.
  • Omicron is more transmissible but less harmful (evident in far lower levels of hospitalisations and deaths relative to the surge in new cases compared to past waves) and so could come to dominate other variants.
  • Past covid exposure is providing a degree of herd immunity.
Combined, this could set coronavirus on the path to being endemic where we learn to “live” with it. South Africa, London and New York are possibly already seeing signs of a peak in Omicron. Of course, the risk of new variants that are more transmissible & more deadly remains – which is why it’s in the interest of developed countries to speed up global vaccination.

Key views on markets for 2022

Still solid economic growth, rising profits and still easy monetary conditions should result in good overall investment returns.
  • Global shares are expected to return around 8% but expect to see a rotation away from growth and tech heavy US shares to more cyclical markets.
  • Australian shares are likely to outperform, helped by leverage to the global cyclical recovery and as investors continue to search for yield in the face of near zero deposit rates but a grossed-up dividend yield of around 5%.
  • Still very low yields & a capital loss from a rise in yields are likely to again result in negative returns from bonds.
  • Unlisted commercial property may see some weakness in retail and office returns, but industrial is likely to be strong. Unlisted infrastructure is expected to see solid returns.
  • Australian home price gains are likely to slow with prices falling later in the year as poor affordability, rising fixed rates, higher interest rate serviceability buffers, reduced home buyer incentives and higher listings impact.
  • Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%.
  • Although the $A could fall further in response to coronavirus and Fed tightening, a rising trend is likely over the next 12 months, helped by still strong commodity prices and a decline in the $US, probably taking it to around $US0.80.


Five reasons to expect more volatility


2022 outlook 2
Source: Strategas, AMP



Six things to watch


Nine things investors should remember

Yeah – I put these in most years!


If you have any questions about this please contact us.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.