Looking Through The Fog: Wealth Managers' 2022 Outlooks

Editorial Staff

17 December 2021

, in Switzerland
We remain convinced that the economic expansion will be confirmed next year and that welcome news, ensuring continuity at the Fed at a “crucial” moment for the US economy, with the implementation of a more restrictive monetary policy on the cards for the next two to three years.

This was before COVID-19 was considered, the virus once again causing panic on the markets at the end of the month, this time due to the Omicron variant.

We did not change our investment policy in the weeks leading up to the appearance of the Omicron variant. Our commitment to favour equities at the expense of bonds, which we have reinforced in recent months, remained unchanged. Recent developments have not led us to change course. In light of the “abrupt” reactions of the markets, which seem more the result of “panic” than facts on the ground, this approach seems to us the most appropriate, even if the performance of our allocations was affected.

Again, the evidence we have on the virulence of the Omicron variant and its associated risks does not justify any rash decision to reduce the overall risk of portfolios.

With the economic expansion set to continue and inflationary pressures insufficiently contained in the short term, the fundamental environment for bonds remains negative. Against this backdrop, 10-year US treasury yields could reach 2.25 per cent to 2.50 per cent in 2022. A policy of underweighting government debt and short duration bonds therefore remains the best course.

Even though their return potential is now more limited, we believe that corporate debt – especially high yield corporate debt – should be favoured in bond holdings, especially for less aggressive investors.

Equities offer potential in line with expected earnings growth for 2022, which is around 8 per cent to 9 per cent for developed markets. Due to their cheaper valuations, together with the more advanced economic cycle and higher interest rate risk in the US.