Outlook 2022...There may come a time to pivot

CIO MONTHLY | DECEMBER

With 2021 drawing to a close, we have maintained our tactical positioning, with portfolios moderately tilted toward equities. Under our central scenario of near-term easing inflation pressure, we expect continued equity outperformance in H1 2022. Under the downside scenario, risk assets would struggle as growth stalls and yields rise. In the year ahead, the key themes that we expect to guide markets (bond yields, inflation and monetary policy) should become clearer we as progress through Q1 2022.


  • Will supply-driven inflation pressures ease? ‘Transitory’ inflation is evolving into ‘persistent’ inflation - but we do not believe this makes it structural. Look for easing pressures in Q1 2022.
  • Will risk positioning need to pivot more defensively in H2 2022? Lower unemployment could see central banks shift more hawkish in mid-2022, flagging policy tightening in H2 2022.
  • How quickly can the world contain Omicron? There are more unknowns than knowns at this time. Early signs are that this variant is more contagious but not more deadly. The world is more adept at delivering vaccines and potential short-term lockdowns are likely to be less of a growth impost.
  • Can the value style keep rewarding, even for structural ‘growth’ bulls? Higher bond yields should support ‘cyclical value’ and ‘quality’ as a style in H1 2022.
  • Can income make a comeback? Rising yields have the potential to refocus attention on income as 2023 comes into view. For those with limited exposure, it may be time to gradually add some diversified fixed income back to portfolios.
  • How strong could Australia’s H1 2022 recovery be? Reopening has underpinned a material pick-up in Q4. Business confidence has improved and consumer spending has increased. With interest rates staying low, savings high, capex intentions rising, and pent-up housing activity in play, growth in H1 2022 could surprise positively.