BlackRock: What 2021 has taught investors and what 2022 will bring – The ‘bets’ of the new regularity

Her Eleftherias Kourtali

A new, highly contagious variant of the coronavirus could slow growth, worsen the investment climate and have a significant impact on various sectors, according to global bond market investment giant BlackRock in a new strategy report. The fund still prefers risk-taking positions, especially in stocks, but warns that it will change its stance if it turns out that the new variant “bypasses” vaccines. However, if the vaccines are effective, Omicron is only expected to delay the restart and recovery of the economic activity, which means that any corrections in the markets will be significant opportunities for new placements. After all, as BlackRock typically notes, “less growth now means more growth later.”

According to the fund, in 2021 it gave three basic “lessons” to investors in 2021 which will determine the strategy of 2022, the following:

It is a restart, not a recovery

2021 was marked by a series of unprecedented events: a unique spike in growth, an explosive rise in inflation and new resilience tests for central banks. The normal logic of the economic cycle is by no means appropriate to what we are experiencing. The COVID-19 shock was more like a natural disaster, followed by a strong resumption of economic activity. This restart is nothing like the long, hard recovery after the 2008-2009 financial crisis. It’s more like people turned on the lights again, as BlackRock typically notes. Economic activity soared, corporate profits recovered at an impressive pace during the reopening and shares of developed markets “ran”.

BlackRock had long warned of higher inflation after decades of deflation. Inflation is now here and with “noise”. It is driven by bottlenecks in supply combined with unusually high household spending on goods rather than services. It is expected to stabilize at higher levels than pre-COVIDs, even when pressures from bottlenecks on supply are reduced. In the past, central banks would have already started raising policy rates and bond yields would have risen. But this does not apply to the “now”.

Many central banks were content to let inflation rise, and bond yields rose only moderately relative to the inflation picture. The Fed last week acknowledged the risks of inflation and BlackRock expects to start raising interest rates next year. “This is a big change, but what matters is the interest rate trajectory,” BlackRock said, adding that he did not expect interest rates to move as high as they would in other stages of a recovery from a shock in the past.

The second investment lesson of 2021 is, as BlackRock notes, the transition to a more sustainable world which is already happening and is not something that… is expected to happen sometime in the future.

First, rising fossil fuel prices in 2021 have led to a clear transition to low carbon emissions. “We are still seeing a smooth transition in the medium term – but with some ‘potholes’ on the road that will lead to growth instability and inflation,” he said.

However, as he points out, inflationary pressures would be even more intense and growth lower in the event of a erratic transition or a climate-free scenario.

Second, the shift to sustainable investment is already under way and this will give sustainable assets a return on investment for years to come. Climate-oriented rerating has already begun, with shares of sustainable companies performing higher, while companies with high carbon emissions are not expecting new climate policies, but are now changing their business models, thus “opening up” selected investment chances.

The third lesson for 2021 is “to have the courage of one ‘s belief”. BlackRock’s macroeconomic framework and growth forecasts following the shock of the 2020 recession kept it overweight in stocks and underweight in government bonds year-round. This “courage” as he explains does not only mean adding risk but also withdrawing from the risk when you see things change.

What does all this mean for the 2022 investment strategy? “We are still overweight in equities, even as the Omicron variant and the Fed ‘s approach to the reality of inflation have hit risk appetite,” BlackRock said, adding that any new coronavirus variants are expected to be delayed. but not to derail the restart of the economy and interest rates will rise modestly only in the next phase, that of the new regularity after the pandemic.