Advice firms see Covid as biggest market risk in 2022

7 December 2021

Advisers see Covid uncertainty still posing the biggest risk to financial markets in 2022.

As part of Quilter Investors’ 2022 Global Outlook event, nearly 300 advisers were surveyed and 66% said new variants and the speed of global vaccination efforts marked the biggest concern for markets going forward. It follows volatility in the markets, which saw the FTSE 100 suffer its worst session in more than a year on 26th November, as news of the latest Omicron variant hit equity markets.

A further 19% of advisers believe rising inflation will pose the biggest risk, while around one in eight (12%) were most concerned about strong economic growth failing to materialize or proving short-lived.

Just 4% felt a central bank policy error could cause harm to the markets next year.

Despite concerns around the new Omicron variant, Danny Knight, head of investment directors at Quilter Investors, urged advisers not to overreact.

Knight said: “While Covid is always going to be a concern while it is prevalent, Friday’s volatility and Monday’s quick recovery show that investors are increasingly coming to terms with life in the post-pandemic era.

“Indeed, the volatility witnessed is nothing compared to what we saw in 2020 and investors are becoming increasingly less concerned as to news of the next stage of the coronavirus’ life cycle.

“This suggests that more fundamental market drivers such as company earnings, investor sentiment and the outlook for inflation and interest rates will play a far greater part in deciding how markets perform in the year ahead than the latest discoveries about the coronavirus and its variants.”

Knight said advisers and investors need to be alert to other risks as the recovery plays out, with all eyes likely to be on central banks in the first half of next year as higher inflation takes hold.

He added: “It could be argued the recovery has never looked so uncertain and as such diversification is going to play a crucial role. Rather than Big Tech driving market gains, we are likely to see a broadening of returns and companies doing the heavy lifting. This will, however, require active decision making to harness these opportunities and is something advisers need to bear in mind as the year progresses.”

Professional Paraplanner