Article 10 January, 2022

Dan Hanbury’s outlook: Grounds for optimism

Written by
Share

Print Friendly, PDF & Email

As we enter 2022 with global equity markets at or around all-time highs, we should expect some volatility during the year as globally policymakers grapple with an unclear view on the economy, inflation and interest rates. As the Fed and other central banks begin to hike rates it will be seen as a sign of economic strength with mining, financial and consumer stocks likely to move higher. Speculative stocks like IPOs and biotechs may also struggle for a period. However, investors will once again need to adjust to the fact that rates can not be raised by more than one or two times as the year progresses, despite volatile inflation data affecting the long end of the yield curve. The Fed will choose to save the economy and stock market ahead of taming inflation as it usually does. At that point, gold and precious metals may take their cue to move considerably higher after some relative weakness in the past year. Lower for longer rates will also probably continue to support house prices and real estate. Structural growth and innovation will continue to support many new disruptors despite some obvious pockets of overvaluation in certain areas of global markets. The decarbonisation innovation wave will continue to accelerate, particularly in areas such as EVs (electric vehicles) and battery materials presenting more exciting investment opportunities.

“Our sustainability focus keeps us investing in undervalued, innovative, environmentally sustainable businesses to drive forward the UK and indeed global economy.”

The relatively lower starting valuations within the UK stock market should provide a solid starting point for entering 2022. Consumer-related stocks should continue to recover as spending switches back to retail, travel & leisure areas and Covid becomes seen as endemic rather than a deadly pandemic. As, beyond some first quarter volatility, the macro environment becomes more conducive to financial stocks, fintech stocks will likely become of even greater interest for us as these disruptors take share in a huge market. Despite some overvaluation in some tech stocks – trends like the cloud outsourcing theme actually remain relatively early and we shall continue to evaluate tech stocks on sound valuations as opportunities arise. Mining stocks should remain well bid either due to precious metals moving higher or base metals stocks benefitting from the incredible electrification trends currently still in play. Biden’s infrastructure bill as well as other UK Government policy will continue to provide tailwinds to the latter.  With the retreat of Covid we should probably expect relatively more subdued performance from the WFH (working from home), home improvement and biotech stocks, which have done so well the past couple of years.  Areas of caution as we enter 2022 also still include China exposed stocks, with the country’s myriad of challenges. Oil exposure is another cautionary area, as despite a recent spike and fears of underinvestment, which may lead to a permanently higher plateau, the oil price will no doubt follow history in its volatility and soon come under pressure as economies move away from fossil fuels.

Our sustainability focus keeps us investing in undervalued, innovative, environmentally sustainable businesses to drive forward the UK and indeed global economy. Socially we should be mindful of further ‘uprisings’ as high food price inflation persists, exacerbating societal inequality. With speculation rampant in certain markets, we should also expect more governance issues to arise – fraud being the most damaging and hardest to detect. Finally, there are challenges to navigate at the beginning of every year, but we remain optimistic that the human ingenuity demonstrated developing effective vaccines over the last 2 years will continue to positively surprise us in future periods.

 

 

 

The information in this article has been prepared and issued by River and Mercantile Asset Management LLP (trading as “River and Mercantile” and “River and Mercantile Asset Management”) registered in England and Wales under Company No. OC317647, with its registered office at 30 Coleman Street, London EC2R 5AL.
River and Mercantile Asset Management LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 453087) and is registered with the US Securities and Exchange Commission as an Investment Adviser under the Investment Advisers Act of 1940.
This article is directed at professional clients. The information in this article should not be relied on or form the basis of any investment decision.

ES R&M UK Equity Smaller Companies Fund

Investors can get exposure to vast potential of opportunity in this under-researched sector, which our specialist team have the ability to extract through their proven process. 

river and mercantile bolsts infrastructure team with further hires

Latest perspectives

Hugh Sergeant’s outlook: Huge anomalies to exploit

Hugh Sergeant’s outlook: Huge anomalies ...

Article 10 January, 2022

Huge anomalies to exploit should lead us to a good position for 2022

3 min read

William Lough’s outlook: UK equities have been out-of-fashion but are well suited to the current environment

William Lough’s outlook: UK equities ...

Article 10 January, 2022

UK equities have been out-of-fashion but are well suited for the current environment, with low…

3 min read

Dan Hanbury’s outlook: Grounds for optimism

Dan Hanbury’s outlook: Grounds for ...

Article 10 January, 2022

As we enter 2022 with global equity markets at or around all-time highs, Dan Hanbury…

4 min read

James Sym’s outlook: Will 2022 be the year the industry stops playing at ESG, and starts doing it properly?

James Sym’s outlook: Will 2022 ...

Article 7 January, 2022

James Sym, Head of European Equities at River and Mercantile says that 2022 will be…

3 min read

Sign up to our newsletters

Stay ahead of the curve by receiving our newsletter containing current industry developments and insights.