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Global equities: where the risks and opportunities are in 2022

December 15, 2021

The key question for 2022 is whether the US Fed can keep inflation under control without short-circuiting the business cycle, says Pendal’s head of global equities ASHLEY PITTARD

  • Investors head into 2022 with unusual macro settings
  • Risk is tech stocks underperform, dragging down the market
  • Opportunity for mid and small caps to outperform

GLOBAL equities investors enter 2022 with very unusual macro-economic settings in place – high inflation and low bond yields.

It’s Covid-related — as is the recent rotation back to perceived safer assets such as US tech stocks.

The rotation is contributing to one of the biggest risks to global equities in the coming year — mega caps underperforming and markets going backwards with increased volatility, says Pendal’s head of global equities, Ashley Pittard.

“The past year has been a tale of two halves,” says Pittard.

“The Delta variant of Covid-19 hit mid-year and delayed the recovery and the re-opening story. The market rotated back to safe havens.

“For example, five of the top stocks in the Nasdaq 100 – Microsoft, Apple, Alphabet, Tesla and NVIDIA – contributed 72 per cent of the total NASDAQ return.

“There’s lofty valuations in equities and a narrowness of the market because of the tech companies.

“There has been a massive initial public offering frenzy, there’s inflation that is now more than transitory and the US Federal Reserve is withdrawing stimulus.”

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Pendal Concentrated Global Share Fund

Inflation is critical. Pittard argues it’s more than transitory because wage increases are now being embedded into economies, and the cost of housing – be that home prices or rents – are set to rise. Higher inflation will impact company profit margins and earnings.

“So the big risk for 2022 is muted or negative returns for global indices and increased volatility,” he says.

Opportunity in 2022

Opportunity in 2022 depends heavily on the US Federal Reserve, Pittard says.

“Can the US Fed keep inflation under control without short-circuiting the business cycle? That’s the key question.

“If earnings growth can broaden outside tech companies — and capital spending increases outside really large caps and the top five NASDAQ stocks — markets will do very, very well.

“We have already seen some fragility in the earnings growth of the ultra-large tech companies.

“But if we see broad-based capital spending and earnings growth, the mid and small caps will do well.

“The banks will do well. Businesses that have pricing power will do well and emerging markets will do well.”

About Ashley Pittard and Pendal Concentrated Global Share Fund

Ashley Pittard leads Pendal’s Global Equities investment boutique. He is responsible for setting the strategy, processes and risk management for the boutique and its funds including Pendal Concentrated Global Share (COGS) Fund.

Ashley has more than 24 years of finance experience, including roles in petroleum economics, global energy investment analysis and 20 years as a global equities fund manager.

Pendal COGS Fund is an actively managed, concentrated portfolio of global shares diversified across a broad range of global sharemarkets.

Find out more about Pendal Concentrated Global Share 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.

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at December 14, 2021. PFSL is the responsible entity and issuer of units in the Pendal Concentrated Global Share Fund (Fund) ARSN: 613 608 085. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8:00am to 6:00pm (Sydney time) or visit our website www.pendalgroup.com

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