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Investors should expect more volatility in 2022, but it’s not all bad news

By Fergus Halliday
3 minute read

What should investors expect from the share market in 2022?

The year 2022 is sure to include surprises for the stock market, but experts already have some ideas about what investors should expect.

Speaking to InvestorDaily, VanEck head of investments and capital markets Russel Chesler flagged rising inflation and the complacency around it as one of the bigger going concerns.

“From a more macro perspective, inflation is definitely a risk both in Australia and offshore,” he said.

When it comes to the local market, Mr Chesler pointed out the contradiction between market predictions and what the Reserve Bank of Australia is saying about the possibility of a rate rise.

More broadly, the main thing that he suggested that investors should expect is ongoing volatility.

“There's obviously a lot of unknowns, but the one thing we can say for sure when it comes to what you should expect going forward is you're going to see a lot of volatility,” he said, arguing that examples of this can already be seen in the market’s response to the Omicron variant outbreak.

In the wake of ongoing uncertainty, Mr Chesler warned of the collapse of what he called “zombie” companies.

“You're going to see [those] companies collapse ... Companies which have just been surviving on cheap credit and on things like JobKeeper and JobSeeker,” he explained.

On the other hand, these unpredictable economic conditions would likely benefit quality stocks.

“We'll continue to see quality stocks outperform because quality stocks typically outperform in volatile times, as well as when you see maybe a deceleration in manufacturing activity or contraction of the market side of things,” Mr Chesler said.

Another big trend to watch in 2022 is the growing presence of ESG investing.

Even if this is more of a long-term trend, Mr Chesler said that he expects to see it having more of a presence in 2022.

AMP chief economist Dr Shane Oliver told InvestorDaily that investors should expect volatility, though maybe not as much as that seen in 2021.

“There's probably going to be a few setbacks associated with coronavirus, but broadly speaking, it should still be pretty strong, and the Aussie economy should see a growth catch up after the lockdowns derailed growth in the September quarter of this year,” he said.

When it comes to returns, Dr Oliver is more optimistic about the idea of high single-digits than double digits.

“A lot depends on the global growth backdrop. It normally pays to be bullish unless a recession is on the way, and so far, it’s still hard to say a recession is on the way,” he said.

Mr Oliver predicted that the biggest growth for the stock markets will likely occur in the cyclical sectors that typically benefit from economic recovery.

He noted that tech might be a laggard in this environment and recommended that investors focus on those sectors that will benefit from reopening rather than the individual stocks that benefited from lockdowns.

“We don't know to what degree activity will go back into those sectors and where the dust will settle in terms of the number of people going into the office and people doing their shopping through shopping centres as opposed to online,” he said.