2022 investor outlook

It’s only February and already it’s been an interesting beginning to the year, with many curveballs being thrown at stock markets.  

We saw a volatile start which was considered a knee-jerk reaction to America’s accelerated timeline for interest rate rises.   

In Australia, the rising inflation and impacts of tension eastern Europe is affecting the price of current markets as well as everyday items such as fuel and groceries. 

With this uncertainty, a rise in interest rates is most likely on the way to Australia towards the back end of the year, causing worried investors to de-risk and move toward more stable blue-chip investments.  

As we already know, it’s very hard to predict what markets will do, but the economy is in good shape and will soon be able to give us moderate returns.  

Once these worries start to calm, some level of normalcy will return to the markets and the earning season will prove advantageous. 

Companies are in good shape for the year ahead – we are confident the markets will give us a good return and equities are likely the place to expect a higher return out of most asset classes. 

Generally, the accepted response to rising interest rates is a reduction in equities as investors are prepared to take a little bit less risk so they can get a return in safer asset classes.  

The alternative to equities is predominantly bonds, and with rising interest rates, the value of bonds tends to reduce as new issues paying a better return can be acquired. However, a terrific return on bonds isn’t expected to improve until the top of the interest rate cycle is reached. 

Another aspect to look at is property – the last two years’ worth of property price increases were reflective of an overall asset price increase whereby property prices have increased as have depreciation assets such as cars.  

Property is a reliable investment as plenty of people know it and understand it better than equities or bonds. It’s also possible to borrow more against property, and it’s a safer loan for banks.  

We expect rising interest rates to initially affect banks’ lending criteria and calculation meaning the availability of credit should diminish and slow some of the market.  

It’s unlikely we’ll end up in a situation where people are having to sell and causing a massive correction, but things will more than likely slow down. 

As the year rolls on, we’ll be keeping a keen eye on how the market responds to evolving situations and how investors choose to react.  

There’s no doubt it will be an interesting 2022. 

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