2022 is going to be another year of positive returns, though unlikely to match the past two years. Volatility is going to dominate headlines and risky bets are unlikely to pay off. 2022 will see active investors perform well as they can cut through noise and find hidden gems overlooked by the market. We see a number of themes playing out in 2022.
- The return of high dividends
Income is going to be a key driver of returns in 2022, expected to deliver close to half of the expected return. Despite lower resource sector payouts, we expect most sectors to pick up the slack, particularly the banks.
- Election
An Australian Federal election always drives asymmetrical returns to some sectors. We’re likely to see more stimulus to consumers, though not meaningful in comparison to the handouts over the past few years. Fiscal spending will be another area of focus though most have been discussed in the past 12 months.
- The reopening of the economy
We expect the Covid recovery to continue into 2022. While there’s still uncertainty in relation to Omicron, we expect the economic recovery to continue. Domestic travel should return to normal by mid-year and international travel should recover meaningfully later in 2022.
- Higher interest rates
Interest rates will be higher compared to the past two years, where rates have been at emergency low levels. We aren’t expecting interest rates to return to the pre-Covid level, although we should see synchronised tightening around the world (except China). Higher rates will see housing markets taking a pause and non-profitable tech under further pressure.
- China stimulus
China will stimulate to keep growth rates up, though its border is likely to remain closed as it keeps the zero Covid policy leading up to the People’s Congress later in 2022.
3 stocks to watch in 2022
A2 milk, Seek and Treasury Wine.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
