Your average expert might not have predicted that Mongolia would be the world’s best-performing index in 2021, or that a movie theatre chain would return 1,200 percent. While most analysts projected a rebound after the pandemic-induced collapse, few predicted the vigour with which the rally propelled European and American equities to new highs or the more recent dip following the introduction of the omicron form of a pandemic virus. Even fewer had predicted China’s collapse or the liquidity issue afflicting the country’s developers.
Much of what has happened in stock markets this year has been driven by specific circumstances. If you invested your money in Turkish equities, it was the worst of times, with the lira plummeting due to the country’s peculiar approach to inflation. If your passion for South Korean television led you to invest in Bucket Studio Co., which holds a share in an agency that manages Squid Game’s lead actor, it was the best of times.
Despite such outliers, there were wider patterns that dominated the market this year. Even if predictions are notoriously inaccurate, you should probably pay attention to the following subjects in 2022:
For almost two years, pandemic developments have been the market’s key driver, triggering a slump in 2020 and then a strong rally on the back of vaccination programmes, allowing an economic reopening. Worries about the omicron variety have now sent shockwaves through global stock markets. Antiviral drugs are expected to add to humanity’s armoury against the deadly epidemic next year, according to most experts. Despite warnings that the new strain may not react to established therapies, the majority opinion has remained unchanged.
If the pandemic has taught us anything, it’s that equitable planning is one thing, and epidemiology is quite another. Even if the virus were to vanish from our lives, the stock market direction would almost certainly be determined by the absence of fiscal and monetary stimulation, two of the key drivers of this year’s euphoria.
This year’s market focus was on rising prices, and for good reason: soaring corporate earnings demonstrated that corporations can pass on greater costs to a receptive customer. Expect a relief rally if inflationary pressures reduce in the coming months, as it is what stocks have priced in.
Inflationary pressures would also force central banks to tighten policy, raising borrowing costs for heavily indebted countries like Italy and draining market liquidity.
The transition to climate neutrality, which the world’s largest economies — from the United States to India — jointly agreed to this year, is one reason why inflation may remain structurally higher. Higher carbon prices and environmental taxes raise industrial production costs, while a lack of investment in fossil fuels has contributed to an increase in energy costs that threatens to stifle growth and disrupt productivity.
From social media to gaming platforms, Facebook’s rebranding drew attention to a burgeoning realm of economic activity outside of the physical world. According to experts, this is because individuals in the developed world increasingly spend more time online than in physical settings. While the trend surged during the pandemic with stay-at-home orders, it is expected to continue in the years ahead.
This year, Beijing enacted draconian steps to limit the profits of IT behemoths and teaching corporations, as well as financing curbs on real estate developers, in order to reduce its reliance on the sector. At the same time, rising factory-gate prices have made it difficult for businesses to sustain profit margins, while the country’s central bank’s absence of meaningful easing measures in recent months has slowed economic growth.
Further Key Takeaways
Staying on top of these trends will not guarantee investors meaningful gains. From the US midterm elections to the French presidential election, from tensions in Taiwan to a full-blown economic crisis in Turkey following the lira’s depreciation, potential black or white swan events abound. Supply chain bottlenecks will be continuously monitored, and traders may need to consider global warming as another wildcard.
And if 2021 taught us anything, it’s that focusing on the fundamentals of firms in which you invest isn’t necessarily the best plan. Experts encourage investors to be careful in the future, avoiding companies with high labour expenses and equities that are solely based on long-term growth projections.