QUESTION OF THE WEEK

How do you see supply chain disruptions in 2022?

Every other week, we ask for your thoughts on a top question our portfolio managers and strategists are debating. We share the final poll results and our insights.  

    There have been recent signs that supply bottlenecks have started to dissolve around the globe, even as the new Omicron virus strain injects a dose of uncertainty.

    #QuestionOfTheWeek: How do you see supply chain disruptions developing into 2022?

    • Worsen (17%)
    • Ease substantially (31%)
    • Move into background (21%)
    • Ebb and flow (31%)

    Source: Blackrock Investment Institute, with data from SurveyMonkey. Note: Data does not include results from BlackRock social media polls.

     

    Poll results

    Public poll responses were tied between “Ease substantially” (31%) and “Ebb and flow” (31%). Another 21% voted that supply chain disruptions will move into the background in 2022 and 17% of respondents selected “Worsen”.

    Most BlackRock portfolio managers who voted (57%) expect supply bottlenecks to move into the background next year, allowing the market to move onto other issues. Almost a third (32%) saw some bottlenecks will resolve, only to be replaced by others – this ebb and flow will keep the topic front of mind. Only 2% saw them worsening, with extraordinary demand for goods continuing to overwhelm supply. 

    Supply chain crunches

    A portfolio manager in the BlackRock Fixed Income Group noted semiconductors will continue to be in short supply next year – the epicenter of the shortage has moved from the auto industry to now hit other industries like tech hardware.  In their view, it will take several years to meaningfully increase supply. 

    The Alternative Investors team expected electricity prices to increase significantly. It's the first time in 10 years that the price of PV modules (solar panels) has gone up, and peak energy pricing is likely still ahead.

    The Portfolio Management Group discussed supply chains continuing to operate at the mercy of the pandemic, which is also ebbing and flowing. Others agreed, noting that trucking shortages in particular are not going away any time soon, and thought perhaps we’ll still be talking about housing market and semiconductor/chip shortages one year from now.  Some cited bottlenecks are propagating beyond the hard-hit auto and staples sectors to a wide cross-section of industries.

    Some portfolio managers expected supply bottlenecks to ease around Q2 and don’t think the pandemic has led to any structural changes in demand, so inflation should drop back once supply constraints ease. Others referenced anecdotal evidence pointing to easing pressure and normalizing backlogs in shipping and logistics. Though in some places the chip situation is resolving – Malaysia, where 10% of the world's chips are packaged, is fully back online, though it will take a bit of time to work through the whole supply chain.

    The same view holds within the Asia Pacific Fixed Income team where the expectation was that supply chain issues are to ease substantially: South and Southeast Asia are all now coming back online very strongly, which implies a normalization of goods production and lower prices ahead, in turn supporting services spending.

    New variant

     A curve ball? A strategist in the Multi-Asset Strategies Team said today’s Covid news of the new virus strain Omicron could mean it takes longer for supply bottlenecks to ease. Even if the vaccines maintain efficacy, much of Asia has a zero Covid policy, which could mean longer-lasting restrictions.

    Our Market take

    Current supply constraints are among the most severe of the last 75 years according to the BlackRock Investment Institute’s analysis (BII). BII expects these to ease in 2022 – and is closely watching developments around the new Covid variant in terms of transmissibility and its ability to evade vaccines. Provided it doesn’t derail the restart, we’re still in a world where the cumulative matters: less restart now means more later. And we have seen growth and activity become more resilient to restrictions with each wave.

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