News

2021 was a very good year for equity investors with returns of +38.5% (US), +26.3% (UK) and +26.2% (Europe)* in euro terms. As we look toward 2022, worries of rising inflation, potential interest rate increases and the long-drawn-out uncertainty related to Covid are the main concerns for investors.While these factors are likely to lead to greater volatility, we believe there are also some reasons for remaining optimistic going into 2022.

We anticipate a slowing from the rapid recovery seen in 2021; however, with the full reopening of the service sector, pent up demand and high levels of cash reserves for households and business, global growth is projected to be approx. 4.5% in 2022.The main areas that are well highlighted by most fund managers as the source of volatility for the year are:

Covid Infections – While 2021 saw the vaccine rollout in developed markets being hailed as a great success, the slower uptake in emerging markets and the Omicron variant gave markets a reason to pause.However, currently, infection rates of the variant are increasing globally but the early data emerging seems to show a weaker link between infections and hospitalisations.The expectation is that we will see the continued re-opening of the global economy.

Inflation – Last year there was talk of inflation being transitory due to pent up demand from the shutdown of manufacturing. We expect inflation to continue to affect markets in 2022. When operations return to normal, prices will normalise too; however, factors such as the cost of energy and the availability of truck drivers will have a longer-term effect on some sectors. We are also seeing an increase in property prices which in turn will increase the cost of rentals. The shortage of labour in some sectors will also lead to an increase in wages, the cost of which will ultimately be passed on to the consumer.

Interest rates – This is the tool that central bankers use to “tame” inflation. The Fed (US Central Bank) has been vocal about its concerns regarding inflation and market commentators are expecting the Fed to announce an interest rate rise in March/April with a total of 3 increases before the end of 2022. The UK Central Bank is also expected to raise interest rates later in the year; however, in the EU, market commentators are not expecting an increase in interest rates until 2023.

Based on early year predictions from economists, we expect 2022 to offer positive returns; however, remain extremely volatile. While the above topics have been well flagged by many investment houses there is always the next expected unexpected shock to markets.

What we can guarantee is that markets will always fall and rise and we encourage our clients to take a long-term view of their investments, become comfortable with appropriate risk and to look through the shorter-term factors which may be behind temporary market swings.It is important to take the time to review your investments every year to ensure they still match your appetite for risk.

*source: Financial Times, Financial Express.

Jacinta Clerkin BSc QFA FLIA RPA is a Qualified Financial Advisor, Fellow of the Life Insurance Association and Retirement Planning Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on jacinta@jfl.ie.