Global Investment Views - February 2022

Fast and furious market gyrations 

January has seen strong gyrations in markets, with nominal and real yields rising sharply, driving a strong shift from growth to value in equities. The reassessment of the inflation premium in the wake of demanding valuations has driven a strong repricing of risk premia. Going forward, we are likely to see continuation of this more uncertain and volatile environment as the market assesses four themes: (1) evolution of the Omicron variant, which could impact growth negatively and further exacerbate supply bottlenecks; (2) uncertainty over CBs’ reactions to high inflation numbers (US and Europe), in a context of growth slowing somewhat and the psychological dimension of inflation resurfacing, with the possible spiraling of wage/growth inflation; (3) geopolitical risk is back, with Kazakhstan and Ukraine in the news and role of Russia and China in the region. Energy and commodity markets are tight, volatile and extremely exposed to political risk. In Europe, the political agenda is getting crowded with Italian and French elections at a time when new fiscal rules unfold and the Next Generation EU plan is implemented; (4) ongoing troubles in the Chinese real estate sector. Policies are turning supportive but investors should forget the high GDP growth figures of the past.