2022 Outlook: Cyclical Value Markets and Sectors Would Outperform?

Pictet asset management says that while bonds will suffer as rates rise, equities should deliver decent single digit gains as strong corporate profits offset a decline in stocks' earnings multiples.

Record valuations, tighter monetary policy, expansionary fiscal measures and surging inflation point to modest gains for equities 2022 following the market's robust recovery from pandemic lows. A US rate hike next summer will push up global bonds yields, though the magnitude of the move will be mitigated by the fact that the US Federal Reserve and other central banks remain concerned about maintaining growth and employment rather than sticking narrowly to their inflation remits.

They say the easy road for equites is coming to an end after three years of stellar double-digit returns.

Based on Pictet asset allocation framework, which takes into account economic conditions, liquidity, asset class valuations and technical readings, the result of this typical mid-cycle tug of war should be single digit returns in 2022. They forecast around 5-10 per cent return for global equities, reflecting a 10 per cent decline in price-to-earnings(PE) ratios, 15 per cent growth in earnings (roughly double the consensus view) and a continued trickle of dividends.