a satellite dish
2022 Outlook & Implementation Guide

Thriving in a new market regime

We see the forces that drove stocks up and bonds down in 2021 – the new nominal theme in action – to still be at play in 2022 as inflation settles at higher levels than pre-Covid.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Investment themes

01

Living with inflation

We expect inflation to be persistent and settle above pre-Covid levels. We expect central banks to kick off rate hikes but remain more tolerant of price pressures, keeping real interest rates historically low and supportive of risk assets.

02

Cutting through confusion

A unique confluence of events – the restart, new virus strains, supply-driven inflation and new central bank frameworks – could cause markets and policymakers to misread inflation. We keep the big picture in mind but acknowledge risks – to the upside and downside - around our core view.

03

Navigating net zero

Climate change is part of the inflation story. We believe a smooth transition is the least inflationary outcome, yet even this still amounts to a supply shock playing out over decades.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of December 2021 and may change as subsequent conditions vary.

Karim: Hello and welcome to the Around the World 2022 Outlook and Implementation Guide special. I’m joined by Natalie Gill, from the Portfolio Research team in the BlackRock Investment Institute, to discuss our key investment themes for 2022 and how these can be implemented in portfolios.

Natalie:
•  Our first theme is Living with inflation: We have entered a higher inflation regime. We have seen inflation jump this year due to supply and demand mismatches during the economic restart. Even once these supply pressures abate and inflation cools we see it persisting at levels higher than pre-Covid.
• Second, Cutting through confusion: A confluence of events for which there is no historic parallel - the restart, new virus strains, supply driven inflation and new central bank frameworks - has created confusion. There’s a growing risk that markets or policy makers misread the current surge in prices. We see the range of outcomes as wide.
• Our final theme is Navigating net zero: the transition is not just a long-term story - it is here and now. We already see evidence to suggests that the cost of capital for carbon efficient sectors is falling, enhancing returns. Companies and countries will need to adapt - this will provide opportunities for investors wanting to drive the transition.
 
Karim: Thanks Natalie – so, how can investors position for these themes?
• We prefer a multi-asset approach to ‘living with inflation’, using inflation-sensitive equities like value, and alternatives like infrastructure, as well as inflation-linked and floating rate bonds to prepare portfolios for a higher inflation regime while managing duration. 
• Next, we see two key ways to ‘cut through confusion’ and position for the wide range of potential outcomes: 1. getting selective in high conviction areas such as DM equities, and granular in EM through an allocation to China and EM ex-China; and 2: by bolstering all-weather portfolio resilience through a focus on diversifiers. 
• To navigate net zero, we like assets that may benefit from the growing preference for sustainable exposures. We’ve seen a growing trend in 2021 of investors replacing the core of their portfolios with sustainable equivalents – quality exposures such as the tech and healthcare sectors also appear well positioned for the green transition. 

Karim Chedid, Head of EMEA iShares Investment Strategy and Natalie Gill, member of the Portfolio Research team in the BlackRock Investment Institute, break down our key themes & outlook for 2022. 

Discover the 2022 BII Global Outlook
Read the latest views from BII across asset classes, as we take stock of recent events and their potential implications for tactical and strategic allocations.
Yellow arrow
Download the 2022 EMEA Implementation Guide
This guide looks at how investors could position for 2022, with an outcome-orientated approach to the key investment themes laid out in the BlackRock Investment Institute’s 2022 Global Outlook.
2022 EMEA Implementation guide