Investment outlook for 2022 - Part 1

Each year I like to sit down and put together some thoughts and ideas about the outlook for investments. It’s not really a prediction, I’ve learnt that predicting markets is a recipe for disaster. Most analysts will predict an average return — something like 8% etc and then have a list of back-up scenarios in case they’re wrong. There’s nothing worse than a prediction that sits on the fence.

Forecasting markets is not dissimilar to wizardry or astrology, in fact they’re pretty much the same thing. Fancy suits don’t like to admit that.

My approach is to focus on the themes and issues, leaving actual returns aside. I don’t care what happens to real estate, stocks, commodities (including Carbon Credits) next year because when I invest, I’m in for the long haul.

I care what happens in 10-20 years, that’s my timeframe.

The important themes to watch

So over the next few weeks, I’ll be putting together my outlook for the themes which I believe will emerge as important investment drivers next year. At this stage of the year, I’m generally seeing the following as key themes:

  • Climate: As the pandemic winds down, there will be a global shift towards the climate emergency and we will see big ideas materialise into actual legislation. This will be the begging of many corporate opportunities. Climate is moving from a social issue to an economic and governance issue.

  • Food: Around 60 percent of global food production occurs in just five countries: China, the United States, India, Brazil, and Argentina. Even within these countries, food production is concentrated in a few regions, such as the Midwestern United States and the Brazilian state of Mato Grosso.

  • Commodities: Production is getting more expensive, energy prices are about to breakout and the world needs more stuff (pent up demand). We’ve already seen coal and iron ore prices move, we’re probably in the early stages of the next commodities super cycle.

  • Income Inequality: Most developed economies have managed to support their population to some extent throughout the lockdowns of 2020-21. But that’s mostly come at the expense of government debt building up, which needs to be paid down. At the same time, the wealthy have managed to amass assets and benefit most from ultra low rates. Watch this space for ramifications on housing policy and supply initiatives.

  • Disruption: I’ll use this term loosely because the ramifications are huge. The pace of disruption will continue to ramp up next year, setting off some big survival issues for traditional industries like banking, health, manufacturing and most service industries. Disruption has a deflationary impact and will continue to allow central banks to maintain low rates.

For now, it’s thinking time. I’ll bring you each of these 5 themes in a single blog posts, so I encourage you to subscribe if you haven’t already.