The last two years have been extraordinary – not only for humanity but also for the global economy. Despite the fact that the COVID-19 pandemic now appears more under control thanks to vaccination programs, parts of the global economy, for example labor markets, have yet to stage a full recovery. Business as usual remains unusual – and will stay so for the foreseeable future. When COVID-19 evolved into a global pandemic in 2020, the ensuing lockdowns sent the global economy into the steepest recession on record. This unprecedented shock led to extraordinary fiscal and monetary support, which helped to trigger a sharp recovery. We believe that a recession like no other will bring a unique recovery.
The recovery continued into 2021, driven by strong stimulus effects and pent-up demand. Inflation rose as well – in part due to so-called base effects, such as ongoing logistics network issues and related disruptions. Toward the end of 2021, some central banks had enough confidence in the economic recovery to start reducing some of the emergency stimulus by slowing down asset purchases (tapering). In 2022, inflation should normalize from the elevated numbers of 2021, though it will likely remain above pre-pandemic levels.
Although, in our view, the coming year will be more “normal” than 2021, plenty of special factors are still at work. At the same time, important trends such as climate change and shifting demographics have reached a level of urgency that could very well result in a permanent change of the current economic order.
Against this backdrop, we foresee good albeit less extraordinary returns from global equities in 2022 than in 2021, with earnings remaining the key driver. Equity segments that lagged the global recovery from the pandemic shock are set to emerge as bright spots alongside industries that benefit from secular growth trends. In contrast, government bond yields will deliver negative returns in 2022. In credit, low spreads – both in investment grade and high yield – will barely compensate for the risks that come with higher yields.
The key for investors navigating this environment is to seek out assets with return profiles that depend on different factors. These diversification effects can be further improved with investment strategies that follow non-traditional patterns.
For women there is perhaps no time like the present to revisit and reengage with investing. Our research has shown that women have been affected relatively more than men during the COVID-19 crisis. More women are employed in sectors that have been most affected by the lockdowns, including retail, restaurants, hotels and personal services. It is vital, both for economic and societal reasons, that women find their way back to the labor market as soon as possible. As women return to the labor market, it is essential that women close retirement gaps widened by the crisis and resume building their wealth, all the more so as interest rates remain unattractively low.
With more than 25 years working as a financial professional, I observe that it continues to be women who are more likely to disengage with their money and hold most of their assets in cash and fixed income. Women tend to be risk averse and often seek to avoid taking risks in their portfolios when they do invest. But in markets, returns are the direct result of taking risk. The outcome is that women too often end up with not enough equities in their investment portfolio and too much cash and fixed income – a clear disadvantage for them in growing their capital over time in a transitioning low interest rate world.