A confluence of geopolitical and macroeconomic events in 2022 have upended markets. While it is easy to be distracted by the short-term news flow and market noise, it is best to focus on the longer-term horizon, exploring the broader trends shaped by these events.
Sustainability. Healthcare. Inflation. Federal Reserve. Technology. These are some of the conundrums confronting investors as the world SHIFTs and adapts to a post-pandemic future. While the scale of the change seems daunting, it is possible to identify a robust set of investment strategies that can withstand the course of an economic cycle — the key is understanding what the mid- to long-term implications of this evolution are.
SSUSTAINABILITY
From climate change to inequality, the state of the world has never been a more urgent focus. Recent events have demonstrated the fragile interconnection between environmental, social and governance issues with geopolitics and financial markets. As the world grapples with these challenges, greater demand for social and environmental action and profound policy shifts are expected to reshape financial markets. A growing commitment to sustainability is already prompting reallocation of capital among asset owners and investors, who increasingly recognize the power of private capital to drive positive social and environmental outcomes.
HHEALTHCARE
Investors seek balance between defensiveness and growth amid volatile markets. The healthcare sector offers a mix of both defensive and dynamic characteristics, even in times of economic uncertainty. From a defensive perspective, the sector benefits from a steady stream of inelastic demand. This is complemented by strong dynamic trends, driving innovation in the sector at an ever-increasing pace, presenting investors with attractive potential opportunities around the world.
IINFLATION
Inflation is a hot topic for investors and policymakers alike. After flying under the radar for almost 40 years, it is surging at a rate not seen in generations. As hopes of a short-lived burst of price pressures fade, generating a satisfactory level of income has become an acute challenge that is prompting investors to revisit their asset allocation and the type of strategies that will deliver enough real return in such an environment. Distinguishing between short-term pain from secular trends will guide investors in their choices of investment strategies that are poised to benefit from this new paradigm.
FFEDERAL RESERVE
Interest rates fell to historically low levels in the wake of several major crises such as the global financial crisis in 2008, sovereign debt crisis in the early 2010s, and the coronavirus pandemic in 2020, as central banks tried to revive battered global economies.
Lately, however, soaring prices are prompting central banks to pivot to inflation fighting. The US Federal Reserve’s (Fed) rate hikes, in particular, have unsettled financial markets, with both equity and fixed income markets correcting sharply in the first half of 2022. The good news for investors is that normalizing interest rates and deflated valuations are offering opportunities that had not been seen for a long time.
TTECHNOLOGY
In the last low-growth decade, tech companies offered a winning combination of consistent and profitable growth, disrupting traditional industries and incumbents with strong network effects. They were also an investor darling during the pandemic, with many business models proving resilient to widespread lockdowns. Although tech stocks have sold off this year as inflation and rising rates slow growth, disruptive innovation and secular growth trends like AI and cloud computing continue to help create investment opportunities in the post-pandemic economy.
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