investment insights

    Global Investment Strategy Q1 2022: Taming inflation

    Global Investment Strategy Q1 2022: Taming inflation
    Stéphane Monier - Chief Investment Officer<br/> Lombard Odier Private Bank

    Stéphane Monier

    Chief Investment Officer
    Lombard Odier Private Bank
    Samy Chaar - Chefökonom und CIO Schweiz

    Samy Chaar

    Chefökonom und CIO Schweiz

    2021 was a year of economic resurrection. This year, we expect the global expansion to continue at reasonable, close-to-trend growth rates in most economies.

    But inflation remains a key concern. While still elevated, price pressures should recede over the coming months.

    Central bank’s efforts to tame inflation will remain a key feature in 2022. We expect three interest rate hikes and a reduction of the Fed’s balance sheet. And while the US is withdrawing policy support, China is easing measures ahead of the Winter Olympics in February and November’s Communist Party congress, in an effort to stabilise growth.

    Bond yields have risen sharply in reaction to the Fed’s withdrawal of monetary accommodation. Although the central bank’s roadmap is clear, the way markets price the pace of tightening is key.

    However, real interest rates are still negative, which means that monetary conditions remain accommodative. That leaves plenty of room to rise further before they risk stalling economic growth.

    Investors therefore need to be highly selective in their fixed income exposures. That is why we prefer short-duration exposures and floating-rate credit. We continue to overweight Asian high-yield credit in US dollars and Chinese debt in renminbi, and underweight the broader sovereign bond market and investment grade credit.

    Solid growth and supportive financial conditions should continue to deliver solid corporate earnings.

    That’s why we favour equities, especially value names, which tend to benefit from rising yields.

    In currencies, we expect a stronger dollar, a weaker euro and a stable renminbi.

    As we begin the new year, geopolitical risks have increased. Markets are already experiencing more volatility, and this underlines the need for active portfolio management.

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