2022 Disruptions

Disruptions Redefine Risk and Opportunity in 2022

Global investment outlook: The ramifications of the pandemic will likely continue to reverberate in 2022, but what does that mean for investors? Our investment teams explore key themes in equity, fixed income and real estate.

Stephen Dover, CFA

Chief Market Strategist, Franklin Templeton Investment Institute

INTRODUCTION

When news of COVID-19 first spread, few of us could have imagined how disruptive the pandemic would be, how it would impact nearly every aspect of our daily lives—and that we would still be dealing with it two years later.

The ramifications of the pandemic will continue to influence capital markets in 2022. I gathered eight of our investment managers to discuss investment themes and risks they are focused on. Here are highlights from our conversations:

• Electric vehicles (EVs) exemplify the roles innovation and technology are playing in equity markets. These “smartphones on wheels” are disrupting the auto industry as EV pioneers capture the interest of growth managers. Our value managers are also finding opportunities in this dynamic market by focusing on how established players are transitioning to keep up with the changes in the industry.
• The United States and China exemplify the starkly different supply and demand fundamentals across global real estate—while the United States navigates housing shortages and rising prices, China is dealing with the meltdown of one of its largest developers along with housing oversupply.
• In the search for yield, investors are exploring an expanding universe of fixed income opportunities:
• Corporate credit has seen balance sheet improvement and a positive ratings trajectory during the pandemic. We still see opportunity for improvement in 2022, with real relative value opportunities in investment-grade credit.
• The US municipal bond space has seen stronger-than-expected tax revenues, which have trickled down into local governments and various municipal sectors. This bodes well for the asset class, particularly in an environment of strong demand and constrained supply.
• Emerging market fundamentals are generally in good shape. Fiscal balances have improved as revenues rebounded, and we have seen rebuilding of liquidity buffers. Local emerging market currencies look vulnerable, which we believe favors hard currency.

We hope you find these views thought-provoking as you chart your investment course in 2022. On behalf of Franklin Templeton and the Investment Institute: Happy New Year!

Read the full article here:  Disruptions Redefine Risk and Opportunity in 2022