Global equities: Five lessons from Europe that investors can take into 2022

What can investors learn from 2021 as we look ahead into next year? Here are five lessons from a European perspective courtesy of UK-based senior fund manager PAUL WILD

THE past two years have been more tumultuous than most others in recent decades.

But with a greater ability of businesses and citizens to live and work with Covid, what are the lessons from 2021 to take into 2022?

Paul Wild, senior fund manager with Pendal Group’s UK-based asset manager JO Hambro Capital Management, provides five lessons from a European perspective:

1. The importance of earnings momentum

If you look at Europe, there’s been earnings upgrades of 27 per cent year to date, and clearly there’s a very high correlation between earnings upgrades and performance.

At the sector level this year, the best performers have been technology and banks, and there’s no surprise that’s where much of the earnings momentum has been.

Looking at 2022, you need to focus on areas of the market which still have earnings upside. In Europe I’d pinpoint banks again this year and automobile stocks.

Pendal Global
Select Fund

Something very
different in
global equities

Read more

2. Monetary policy matters

Monetary policymatters for market direction, sector performance and degrees of volatility. With bond buying to be wound down and US interest rate rises expected by the middle of next year, the decade-long bull market in growth stocks is set to be challenged. Equity valuations will start to really matter again.

3. The green agenda matters

Europe, in particular, is serious about the green agenda. At the UN’s COP26 Climate Change Summit in Glasgow in November, Europe showed leadership and there’s now a huge regional focus on levels of decarbonisation. Investors need to consider the green agenda.

Find out about Pendal Concentrated Global Share Fund

Read more

4. The importance of digitalisation

We know the pandemic had a phenomenal impact on expediting business model change, driven by the shift to the cloud and computerisation generally. The flexibility afforded from cloud computing is enormous and companies that embrace technology will continue to reap benefits in coming years.

5. Supply chains and logistics have changed forever

One of the big themes running through 2021 revolved around transportation and supply chain shortages. In 2022 companies will react to that thematic and there will be de-globalisation. This is likely to be a permanent impact of the pandemic, particularly in manufacturing.

Companies will shift away from just-in-time manufacturing to just-in-case inventories. Management will bring supply chains closer to themselves. That will impact earnings and performance.

About Paul Wild and Pendal global equities strategies

Paul Wild is senior fund manager with J O Hambro Capital Management, a London-based active investment manager which is part of Pendal Group.

Paul manages J O Hambro’s Continental European fund.

Pendal offers a range of global equities strategies to Australian investors including:

• Pendal Global Select Fund
• Pendal Concentrated Global Share Fund
• Regnan Global Equity Impact Solutions Fund
• Pendal Global Emerging Markets Opportunities Fund

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here