Agility counts in a year of disruption and divergence

Going into 2022, investors will want to prepare their portfolios for bouts of volatility and lingering inflation, likely by diversifying more broadly across asset classes, styles and regions. But they should also take this opportunity to factor in the disruptive structural trends that are driving – and even upending – our expectations of the future.

Economic growth seems likely to decelerate after the “base effect” rebound we saw in 2021. Covid-related uncertainty and supply bottlenecks will likely prove to be a drag on growth, as well as a continued source of price volatility. There should also be a divergence in growth figures and central bank support in various parts of the world, and the markets will likely react quickly to any positive or negative macroeconomic data. All the while, inflation seems likely to stay higher than many market-watchers expect.

So what does this mean for investors’ portfolios?

We invite you to explore three structural themes that are likely to play a key role in the coming year.

Navigating Rates

Investors need to watch the speed of interest rate adjustments, fluctuating exchange rates and shifting inflation expectations. We think central banks and many investors underestimate the probability that consumer price inflation may turn out higher than expected – and last longer than is currently priced into financial markets. While some central banks have already imposed rate hikes, and others are close behind, they are also likely to remain “behind the curve” in responding to inflationary pressures. So while inflation may creep up, we don’t expect to see an end to the decades-long era of overall low rates – which means investors must find new ways to protect purchasing power and search for yield.

Appreciating China

The world’s second-largest economy is in the midst of an unparalleled strategic transformation, and it’s important not to lose sight of that even as economic growth slows and regulatory clampdowns impact certain sectors. Volatility will continue to be a hallmark of investing in China, but we remain convinced of the long-term investment case. Those who understand China’s wider political context and strategy – and navigate its markets actively – may be best-placed to avoid bumps in the road along the way.

Achieving Sustainability

With the global effort to reach “net-zero” emissions within a few decades, how can investors use their portfolios to have a positive impact? Investor demand, fast-evolving regulations and a deluge of data will raise the bar on what impact investors can achieve – and how they can achieve it. It’s a highly complex topic, involving disparate stakeholders at different stages of their net-zero journeys. We expect sustainability to be a disruptor for the older economy, as citizens around the world look to have a smaller ecological footprint while having a broader environmental and social “handprint”.

2022 perspectives from our experts

 

MSCI All Country World Index (ACWI) is an unmanaged index designed to represent performance of large- and mid-cap stocks across 23 developed and 24 emerging markets. MSCI China Index is an unmanaged index that captures large- and mid-cap representation across approximately 85% of the China equity universe. Investors cannot invest directly in an index.

There is no guarantee that actively managed investments will outperform the broader market. Environmental, Social and Governance (ESG) strategies consider factors beyond traditional financial information to select securities or eliminate exposure which could result in relative investment performance deviating from other strategies or broad market benchmarks.

Investing in fixed income instruments (if applicable) may expose investors to various risks, including but not limited to creditworthiness, interest rate, liquidity and restricted flexibility risks. Changes to the economic environment and market conditions may affect these risks, resulting in an adverse effect to the value of the investment. During periods of rising nominal interest rates, the values of fixed income instruments (including short positions with respect to fixed income instruments) are generally expected to decline. Conversely, during periods of declining interest rates, the values are generally expected to rise. Liquidity risk may possibly delay or prevent account withdrawals or redemptions.

Information herein is based on sources we believe to be accurate and reliable as at the date it was made. We reserve the right to revise any information herein at any time without notice. No offer or solicitation to buy or sell securities and no investment advice or recommendation is made herein. In making investment decisions, investors should not rely solely on this material but should seek independent professional advice. However, if you choose not to seek professional advice, you should consider the suitability of the product for yourself. Investment involves risks including the possible loss of principal amount invested and risks associated with investment in emerging and less developed markets. Past performance of the fund manager(s), or any prediction, projection or forecast, is not indicative of future performance. This material has not been reviewed by any regulatory authorities. Issued by Allianz Global Investors Asia Pacific Limited.

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    • Allianz Global Investors Fund (“AGIF”) as an umbrella fund under the UCITS regulations has within it different sub-funds investing in fixed income securities, equities, and derivative instruments, each with a different investment objective and/or risk profile.

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