Dubai: «The Gulf»
UBS expects to see an exploratory year that will unveil what the new “normal” will be after two years of closing and reopening. It is expected that the year 2022 will be divided “into two halves”, so that the first half will witness a rise in economic growth and inflation rates to make room for a reduction in growth and inflation in the second half. In the next decade, investors must look for opportunities to transition to a carbon-neutral and “ABC” economy through the use of disruptive technologies—artificial intelligence, big data, and cybersecurity.
Central banks are likely to limit emergency monetary easing as the economic fallout from the pandemic increasingly diminishes. However, the stricter policy is not expected to stand in the way of positive returns in the stock market, according to the forecasts of the UBS Global Wealth Management Principal Investment Office for the next year 2022.
Key recommendations for next year’s report include:
• Purchasing sectors that are profitable in global growth. Economic growth is likely to outpace trends in the first half of 2022, benefiting cyclical stocks, including eurozone stocks, Japanese stocks, US mid-caps, global financial institutions, and commodities and energy stocks.
• Find opportunities in the field of health care. Although growth will be strong in early 2022, in favor of cyclical sectors, the slowdown that will occur throughout the year should begin to tip the more defensive sectors of the market, such as; Healthcare.
• Searching for an unconventional return with continued low interest rates, bond yields and credit spreads by historical standards. US blue chips, synthetic credit, private credit and dividend stocks look attractive.
• A situation that enhances the strength of the US dollar, where a group of factors, represented by the decline of the Federal Reserve and the slowdown in global growth, come in favor of the US currency, compared to currencies linked to more flexible monetary policies, such as; The euro, the yen and the Swiss franc.
In the bond markets, high yields in Asia offer attractive returns, and as 2022 approaches, UBS maintains its preference for sustainable investments for private clients making global investments.
“As the economic growth drivers associated with the pandemic begin to subside, we will embark on an exploratory journey to see if we are entering a new long-term economic order,” says Mark Heffley, director of the Principal Investment Office of UBS Global Wealth Management. We start the year with a positive stance on the sectors gaining from global growth, including Eurozone stocks and the US dollar. In the longer term, we see opportunities in disruptive technologies, the transition to a carbon-neutral economy, and in the power of alternatives to unlock returns and manage volatility.”
decade of transformation
In the next decade, investors face a world of increasing disruptive technologies, aging populations, monetary and fiscal coordination, and declining globalization, as well as stronger political calls for wealth redistribution and environmental action.
The pandemic has accelerated the development of many of these topics and created instability, but it has also posed long-term investment opportunities. For example, the combined revenue from “ABC Technologies” of artificial intelligence, big data and cybersecurity is expected to jump from $384 billion in 2020 to $620 billion in 2025. Achieving growth in these areas will require investors to look at Go beyond just big tech stocks and focus on middle names that can prove to be the “going big” as well as using private equity to acquire targeting companies that are still in the early stages of growth.
At the same time, it appears that the transition to a carbon-neutral economy will prove to be one of the most important investment trends in the next decade. Achieving a carbon-neutral economy is expected to require a global investment of $50 trillion in renewables per decade to 2050, with 50% of emissions reductions having to come from under-developed technologies. This creates opportunity through green technology solutions, clean air, reduced carbon emissions, and carbon trading strategies.
Analyze inflation scenarios
1. Positive scenario: inflation fears recede, or high inflation is accompanied by positive economic growth. Major central banks are keeping interest rates at low levels but start limiting asset purchases on an accelerated schedule as the recovery beats expectations.
2. Medium scenario: US inflation continues at high levels until early 2022 before declining gradually to about 2% by mid-2022. Major central banks are gradually limiting easing but maintaining the easing bias. The Fed finishes cutting quantitative easing by mid-2022.
3. Negative scenario: Inflation continues to rise while growth disappoints. Energy prices are rising and this rise will continue at least until mid-2022. The Fed is surprising the market with an even sharper tightening.
Analysis of growth scenarios
1. Positive scenario: Growth remains well above the long-term trend.
2. Medium scenario: Growth slows but continues to outpace the long-term trend.
3. Downside scenario: Growth slows earlier and sharply more than expected.
Analysis of financial scenarios
1. Positive scenario: Higher than expected fiscal spending continues to support the global economy.
2. Medium scenario: Fiscal impulse fades as governments consider economic recovery.
3. Negative scenario: The decline in the fiscal motive is unable to compensate for the economic weakness.
COVID-19 scenario analysis
1. Positive scenario: The current wave of Covid and/or broad-based economic deregulation will abate faster than expected.
2. Medium scenario: Economic reopening will continue at a gradual pace throughout 2022. The current Covid wave does not escalate to the extent that it is considered to require new closures.
3. Negative scenario: consumption does not fully recover, for example; Because of more resistant Covid-19 mutations, persistent public anxiety, or recurring economic restrictions.
China scenario analysis
1. Positive scenario: COVID-19 restrictions begin to be lifted after the Winter Olympics. Reducing organizational repression.
2. Medium scenario: stable Chinese growth. The lifting of restrictions related to the Covid pandemic will begin in the second quarter of 2022.
3. Negative scenario: The continued and exceeded restrictions related to the COVID-19 pandemic mean that the economic reopening of China will be postponed until the second half of 2022. The real estate crisis is widespread and/or the imposition of further regulatory tightening.
Analysis of (geo-) political scenarios
1. Positive scenario: Partial rollback of current trade tariffs increases global growth.
2. Medium scenario: The United States takes a predictable, multilateral approach to trade policy.
3. Negative scenario: Renewed tension between the United States and China over trade and/or Taiwan.