What will 2022 bring us?

The new stock-market trading year 2022 is just hours away. As usual, a stream of economists and fund managers are sharing their views and expectations of the new year. This is always interesting reading to glean ideas for managing your portfolio.

We have, however, learned from experience that it is extremely difficult to make accurate predictions. You can see proof of this by looking back one year and reading what was predicted then. Our preview assumes that your decisions in 2022 will depend mainly on what type of investor you are. 

2021 will go down in the history books as a magnificent year for the stock markets. The US stock markets delivered returns to investors of over 20% in euro terms. European stock markets also achieved yields of 15% and more. Anyone who focused on Chinese shares, or bought shares from emerging countries, did rather less well. The yields there were only a fraction of those from Western countries.

Will 2022 repeat the same winners?

We don't claim to make any real predictions. Instead, we will review from the point of view of different types of investors. Based on this, we can draw up an investment strategy for 2022:

Are you a value investor? Are you looking for "value"? If so, your main focus will be on shares from emerging countries. Shares from these emerging markets are very attractive in terms of traditional valuation ratios. The price/earnings ratio, the dividend yield and the price/book value ratio of these shares are considerably lower than American shares, for example. And the rule of thumb is: the cheaper the valuation, the higher the expected return in 5 to 10 years. For this reason, a value investor with an internationally diversified portfolio might give a rather higher weighting to shares from emerging countries and a slightly lower weighting to US shares in 2022. The latter are indeed very expensive. In terms of sectors, value investors would likely opt primarily for cyclical and financial shares.

Gold was the biggest loser of 2021. Despite a sharp rise in inflation figures in the Western industrialised countries, gold and silver have barely been able to benefit from this. That was the biggest surprise of the past year. It is also proof that traditional investment theories do not always work. One of these is that when inflation is high, it is better to invest a bit more in precious metals. But there are opportunities here for contrarian investors: the very pessimistic sentiment in the gold and silver markets could be the precursor to a trend reversal. Contrarian investors could therefore systematically build up positions in gold, silver and gold mines.

Investments in US equities have been very profitable over the past year. Anyone who invested in American technology shares will certainly be looking back over a successful 2021. A momentum or trend investor could continue to surf the trend in 2022 and invest mainly in US stocks in general and technology stocks in particular. As long as the rising trend continues, there is no reason to panic and the share card can be played to the hilt. You can determine the trend by watching the 200-day moving average. When the leading indices are above this level, the average trend investor stays in the market. This type of investor will see a breakout below the 200-day average as a signal to reduce their exposure to equities somewhat. In short, to hold more cash in the portfolio.

Conclusion

Take a look in the mirror and determine what type of investor you are. Then get started, because the new year on the stock market will offer opportunities to every type of investor to develop a strategy.

Geert Van Herck Chief Strategist KEYPRIVATE