An expert on which 4 factors will impact your investments most in 2022

Whether you're looking for new ventures or simply want to safeguard your current investments, these are the four trends to watch out for in 2022.

The investment space changed a great deal in 2021. From the emergence of NFTs to the enduring impacts of COVID, investors were faced with a range of challenges and opportunities to grow their wealth.

So, what's in-store for 2022?

According to Brendan Doggett, Australia Country Manager for investing business platform Sharesies, investors can still expect quite a few bumps in the road across 2022 — mainly due to COVID, inflation and the increase of interest rates driving operating costs for companies up.

However, it isn't all doom and gloom.

"The past two years generally showed a steady rise in share markets around the world post the first major dip when the pandemic initially hit — growth companies like tech stocks did very well in 2021," said Doggett.

"This is actually a normal part of how share markets react if you have a look at how share markets go through cycles over time. For example, since World War II, there've been 27 corrections in the S&P 500, but the average annual return, since the index was first started in 1926 through to 2021, is about 10.5%. And over the past five years, the S&P 500 has almost doubled in value."

If you're looking to safeguard your investments this year or find new pockets of opportunity to branch out to, here's what Doggett says are four factors that may impact the investing landscape in 2022.

High inflation and interest rate increases

"To keep economies going during COVID, central banks around the world printed money (Quantitative Easing) so consumers and businesses had more money to spend, as well as lowering interest rates to all-time lows (Expansionary Monetary Policy measures)," explained Doggett.

This, coupled with supply chain issues impacting the accessibility of goods, resulted in inflation, raising the cost of goods and services and diminishing the purchasing power of money.

"While moderate inflation is generally seen as a healthy sign of a growing economy, the high inflation that economies are seeing now can be very damaging if left to persist," explained Doggett. "To combat this inflation and attempt to move it back to a more moderate level, central banks are now having to try 'put the brakes on' a situation that is looking increasingly out of control."

So, what does this mean for investors? According to Doggett, investors can expect that central banks will take a two-pronged approach that involves reducing or stopping the printing of money and raising interest rates (Contractionary Monetary Policy measures). Doggett explained that these measures could negatively impact share markets, and some investors may worry that the 'easy money' the share markets have provided since March 2020 may be coming to an end.

"This fear has been contagious during the beginning of 2022, and we have seen significant volatility across global share markets. If volatility in share markets persists, we expect investors reactions to vary — some may sell if they see their portfolios dip. Others might see this as an opportunity to buy. It's definitely a trend to watch," he added.

Sustainability

Doggett stated that climate change is a topic that has been brought up increasingly in the investing space over the last year. He noted that investors should watch newer industries thrive in a changing world and whether traditional industries adapt to this changing global priority.

"Last year, we saw significant movement in the electric vehicle (EV) and renewable energy industries as the world works to move away from carbon-based fossil fuels," Doggett explained.

"Moving forward, some experts predict that the conversation around climate change will broaden to other issues, and investors will continue to keep an eye on emerging industries in the climate space."

Size matters

"The performance of the S&P 500 index is watched closely by investors around the world, as it is seen as a barometer of the performance of share markets — it is a crude proxy for investors' moods and expectations," said Doggett, explaining how the S&P 500 climbed in value in 2021 signalling, another year of gains for investors.

However, he did note that the current S&P 500 became narrower in breadth over the year. This is because 'mega-cap' stocks contributed to most of its increase in value, with Microsoft, Google, Apple, Nvidia, and Tesla accounting for more than one-third of the S&P 500's 26% return from April-December 2021.

"While these mega-caps grew, many of the smaller constituents of the index didn't. Only a small portion of its constituents was above their 200 days moving average (35%), and the underperformance of these smaller companies generally went unnoticed to investors," he added.

Doggett said investors should note how mega-cap companies perform in 2022 in relation to the market. It could also provide an opportunity for investors to buy smaller stocks for good value.

What markets should you look out for?

Doggett noted that in 2021, most investors were chasing the momentum of the US market; however, as COVID responses mature, emerging markets around the globe are important to watch for investors looking to diversify their portfolios geographically.

"One interesting trend to watch is the performance of emerging markets. The pandemic hit most of these markets hard in 2021, as Delta and slow vaccination rates impacted their economies, impacting the fundamentals of companies whose operations are dependent on the health of emerging market economies," explained Doggett.

"Emerging markets could offer investors lucrative value opportunities in the form of companies that have been overlooked by investors with potential for growth as economies reopen. One way I incorporate exposure to emerging markets in my portfolio is through Emerging Markets exchange-traded funds (ETFs), as it diversifies my investment across a range of markets and companies."

Overall, Doggett stated that the best way for investors to stay prepared and savvy about the market this year is to stick to their goals, continue to think about investing as a long-term wealth development, and explore options that suit their needs and circumstances.

"Short-term market volatility shouldn't be something that scares you," he said.

If you're looking to grow your knowledge and see how other investors are exploring the market in 2022, you can listen to our new podcast, Unlikely Investors (created in partnership with Sharesies), below.

Listen to the podcast here.

Keen to invest too? Sign up to the Sharesies platform and use promo code "UINVEST" for $10 in your account, ready to invest. 

All investing involves risk. T&Cs and fees apply for use of the platform provided by Sharesies Limited. $10 applies to new accounts only. Promotion T&Cs apply and for use of the platform provided by Sharesies Limited.  Brendan Doggett is a sub-authorized representative of Sanlam Private Wealth. This article is provided by Sharesies AU Pty Limited, as an authorised representative of Sanlam Private Wealth Pty Limited (AFSL No. 337927). Image shown does not represent a real portfolio. 

This post was created by Pedestrian Group with Sharesies.