EN - Business (Newsletter) - Flipbook - Page 4
LIONTRUST
OVERALL
• We remain positive on risk assets (primarily equities) heading
into 2022, although the Omicron variant and the geopolitical
situation in the Ukraine have brought a fresh sense of
uncertainty, sparking volatility in markets.
• Early signs point to encouragingly lower hospitalisation
numbers from Omicron but we are keen not to fall into the
amateur epidemiology trap.
• Uncertainty around new variants may delay interest rate hikes
to some extent although the Bank of England was first off the
blocks with a rise of 0.15 percentage points, to 0.25%, at its
December meeting.
• Meanwhile, the US Federal Reserve’s ‘dot plot’ chart now
shows three hikes expected in 2022 and another five in 2023
and 2024, as policy shifts back towards a ‘neutral’ 2.1% rate.
• We feel that while talk about hikes and tapering might be
concerning in the short term, they are ultimately a positive signal on
the global economy reaching escape velocity from the pandemic.
• It is also important to recognise this tightening cycle begins at
historically low levels, with emergency rates rather than the lower
end of a normal range.
• Following recent peaks in policy support, growth and markets,
we would expect to see global GDP moderate to above-trend
levels in 2022 and more active stock selection will be required
in such an environment.
• There remains a split between bulls and bears with respect to
economic outlook so we prefer to take a balanced, flexible
approach where we can focus on long-term themes and build
diversified portfolios able to perform throughout the cycle.
EQUITIES
• Omicron uncertainty was enough to prevent the traditional
Santa rally as 2021 ended.
• In the US, the S&P 500 did manage one last high late in
December and was up just under 27% in 2021. The Stoxx
Europe 600 index remained near its all-time peak after
advancing more than 22%, and with a 14% gain from the
FTSE 100, last year was an excellent 12 months for equities.
• Striking a more cautious note, history suggests that after a
gain of at least 20% by the US index, returns are usually
comparatively muted over the following 12 months, with an
average rise of around 8%.
4
• We see better value in Europe, where stocks are trading at
attractive valuations versus the US due to strong earnings
revisions, and the region is also poised to benefit from a
value/cyclical-driven market.
• The UK remains cheap and, more than a year on from the longawaited Brexit deal getting done, is still a contrarian play despite
strong signs of recovery from the depths of the pandemic.
• Emerging markets remain a watchpoint as the regulatory
shift in China has caused a re-rating of the region’s stocks,
especially in the technology sector. This has made emerging
markets companies more attractive on valuations but they
bring added near-term volatility.
