21 Jun 2022
In-brief:
Our central scenario is that we avoid a severe global downturn thanks in large part to fiscal support, and a more gradual pace of tightening by the central banks in the second half of the year. With major markets having already experienced double-digit declines, significant further downside for risk assets is not our base case.
In line with this central macro scenario, corporate earnings across developed markets should grow modestly in 2022, albeit by much less than current expectations, and margin resilience will be key to share price performance.
After a difficult start to the year the risks to government bond prices are now more evenly balanced and bonds can now offer some portfolio diversification in the more extreme negative scenarios.
Value’s outperformance of growth may continue if economic activity proves resilient to higher commodity prices and interest rates.
Until inflation subsides investors will remain concerned about stagflation. Alternatives such as core infrastructure and real estate, and stocks that offer resilient high dividends, are relatively attractive in this challenging backdrop.