Equity markets were lower this month due to concerns regarding the Omicron variant and the implications of that on the ongoing reopening of the global and domestic economies.
However, the strong performance in equity markets that we’ve seen this year should continue throughout the course of 2022. It’s unlikely to be at the same level, but we do believe that equities are still primed for a reasonable uptick throughout next year.
In November, bond markets rallied, and we saw quite a significant increase in the local market as it was up over 2% during the month, whilst global bonds are up roughly 1%.
Omicron Variant Continues to be a Concern
We saw a significant sell off in equity markets on the back of concerns regarding a new COVID strain. We believe this will continue to be a theme throughout the course of 2022, as markets digest the implications of new mutations and what this means for the speed and the reopening of the global economy.
The new COVID variant will have its own challenges associated with it, including with policy framework, particularly from central banks, and how they deal with higher inflationary expectations coming through the system.
This will be a challenge for bond markets and equities, but we believe that the reopening of the domestic and global economy will be a net positive for equity markets throughout the course of 2022.
Risk on Risk off trades
The risk on risk off trades that we’ve seen over the last couple of months were again quite evident during the month of November. This is certainly having implications in terms of positioning portfolios, as well as the overall performance from a market standpoint. However, when we look at the last 12-month period, particularly as it relates to both equities and bonds, we can clearly see a significant divergence, and in our view that’s likely to be maintained as we head into 2022.
As we head into the back end of the year, we have maintained our focus on positioning portfolios for growth and have remained overweight to growth assets. We have moderated that slightly over the last couple of months, as concerns about the growth outlook at both a domestic and global level continue to present themselves.
However, our overall thematic and view is that growth has continued to deliver over the medium term and have a net benefit as the global economy starts to move through the implications of COVID.
Piers Bolger is Chief Investment Officer at Viridian Advisory.
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