What should investors expect in 2022? Giles Coghlan, chief currency analyst, HYCM considers whether 2022 will be a year of risk or reward.
Almost two years since the pandemic first began, the numbers are almost unfathomable. Global debt has soared to a record $226 trillion – much of which can be accounted for by government borrowing. Now, many central banks are focused on taking action to bring spiralling inflation under wraps – the Bank of England (BoE) has already taken the first steps to do this in recent weeks by hiking interest rates to 0.25%. Undoubtedly, this is something investors will have to bear in mind when mapping out their investment activities.
At the same time, stock markets have surged to record numbers as worldwide economies re-opened. Now, as the inflation narrative continues to unfurl, supply chain bottlenecks, climate change and the threat of Omicron all pose risks.
So, will 2022 be a year of risk or reward? Here are some thoughts.
Make or break: how will proposed regulations affect crypto?
2021 also saw the rise of interest in cryptocurrencies like Bitcoin. We can assume that the currencies caught the eyes of investors as a result of low-interest rates, rising consumer savings, and even stimulus checks over in the U.S. – but as with most nascent investment tools and currencies, it remains volatile. Now, many traders and investors will be looking into their crystal ball to predict what’s next for crypto.
While there is no simple answer to this question, Bitcoin’s recent downturn offers some hints. At time of writing, the currency is falling broadly in line with its 2020 average of around $47,000, however, it has reached highs of $68,000 and lows of $29,000 throughout the year. Expect more volatility to come for the time being.
That said, there has been plenty of talk about regulation in recent weeks, which could buck this trend. U.S. Federal Reserve Chairman Powell, in particular, has raised his concerns about the current lack of regulation, as central banks globally are actively considering whether or not they should create a central bank digital currency (CBDC). The Biden administration has also laid out proposed legislation that would bring greater regulation into the crypto markets. Will these efforts make traders and investors more likely to embrace crypto throughout 2022? Only time will tell, but we can be certain that media interest is not going anywhere anytime soon.
Will tech stocks reach new heights amidst Omicron threats?
One of the major events of 2021 was the phased re-opening of global economies, which allowed the industries most affected by COVID-19 restrictions to open shop once more – namely, the hospitality and travel industries. Throughout the year, these sectors were able to rebound to a certain extent, as consumers were able to visit venues and take holidays, but recent developments with the Omicron variant threaten to disrupt this recovery.
So, will it be a return to the likes of Zoom and Facetime? Perhaps it will be – the UK Government is hoping not to impose further restrictions but Omicron cases are still rising. Investors could turn to ever-popular tech stocks once again, which tend to outperform whatever the weather as a result of their strong profitability and sustainable cashflows. However, the prospect of the Fed hiking interest rates may be enough to limit tech stocks which have already enjoyed a stellar run. Also, incoming data may confirm initial findings that omicron is more transmissible, but less harmful. In time this could lead to Governments accepting transmission of the omicron to a certain extent and could be the end of strict lockdown measures.
Going forward there is likely to be high interest in green technology stocks following the recent COP26 summit and the wider discourse about climate change. Already, share prices for electric car manufacturer Tesla (TSLA) surged by 700% last year, and the company has only continued its breath-taking rise throughout 2021, as it joined the Trillion Dollar Market Cap Club. In 2022, many traders and investors are likely to buy into the promise of tomorrow, too, as they explore technologies that will bolster efforts to become greener.
Central bank taper timelines & the great inflation debate
As I’ve already intimated, the BoE has just become the first major central bank to hike its interest rates in the aftermath of COVID-19 to tame rising inflation, despite the risks posed by Omicron. I would urge investors to follow central bank meetings closely for further announcements, given that the Bank of England has further hikes pencilled in throughout 2022.
In terms of how this event played out in the markets, the pound rallied as much as 0.8%, while UK 10-year yields jumped 5 basis points after the decision. Following this, many traders now predict that the BoE’s key rate will rise to 1% by September. Likewise, the U.S. Federal Reserve are likely to follow suit soon, as Fed Chairman Jerome Powell has already set a hawkish tone, signalling that three rate hikes are to come in the new year, as well as an accelerated winding down of the Government’s stimulus programme.
So, what to make of all of this? Traders and investors would be wise to watch the value of local currencies, which tend to increase in line with rising interest rates. Value stocks may also be worth considering.
Only time will tell what 2022 holds for the investment landscape, but investors would benefit from keeping a close eye on these trends as they plot their activities in the new year.
Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders, trading a variety of instruments in forex, indices, commodities, and stocks.
