Multi Asset Funds: January 2022

06 January 2022

Summary

• Global markets recovered in December after an Omicron-induced sell-off in November with the FTSE All-World Index climbing 4.1% over the month.

• The US Federal Reserve recently opted to increase the pace of tapering, as asset purchases will now be reduced by US$30 billion per month.

• In November, the Chinese credit impulse on a year-on-year basis registered a less negative downturn and monetary policy has indeed become more supportive.

• According to Our World in Data, 49.3% of the world’s population were fully vaccinated as of 31 December 2021, compared to 43.3% in the previous month.

Market update   

Global markets recovered in December, after an Omicron-induced sell-off in November with the FTSE All-World Total Return USD Index climbing 4.1% over the month. While there are concerns over the latest strain of Covid-19 due to a higher transmission rate relative to other strains, evidence suggests that it is milder in severity when compared to other variants. Markets were also likely emboldened by some traction on the US fiscal stimulus package. Over the month, bonds were marginally down, as the FTSE World Broad Investment-Grade Bond Index (WorldBIG) retreated 0.3% in December. 

After the most accommodative monetary policy stance on record, the US Federal Reserve recently opted to increase the pace of tapering, as asset purchases will now be reduced by US$30 billion per month. Additionally, the Federal Open Market Committee lifted their median federal funds rate projections throughout the forecast period. Notably, this now includes a scenario of three rate hikes in 2022 and an additional three rate hikes in 2023 in increments of 25 basis points to stem inflationary pressures. More recently, however, we have seen muted price pressures from commodities which should lend support to a disinflationary backdrop as we progress into the new year. However, elevated natural gas prices in the European region and in the United Kingdom amid low inventory levels, poses a real threat to corporate margins if sustained at these higher prices.    

China remains as one of the few equity markets to underperform in 2021 and among one of the worst in the emerging market basket. However, in November the Chinese credit impulse on a year-on-year basis registered a less negative downturn and monetary policy has indeed become more supportive. For now, we remain relatively cautious on China, although our expectation is for improved credit conditions, which combined with low market multiples could see us become more constructive during 2022. In Turkey, currency volatility remains rife as haphazard policy pronouncements from President Erdogan continue to drive currency direction in the Lira.   

The global vaccination rollout continues to make significant headway. According to Our World in Data, 49.3% of the world’s population were fully vaccinated as of 31 December 2021, compared to 43.3% in the previous month.  

Fund strategy

Heading into 2022, we are cautious on the returns for global equity markets as many of the catalysts that propelled equities in 2021 will likely fade. Supportive monetary and fiscal policy, particularly in the US, is starting to dissipate. It will be important to remain on high alert once global liquidity is drained from financials markets. For now, the developed market consumer income statement and balance sheet position stand in good stead, although we expect precautionary savings to fully unwind in the near-term unless further lockdown restrictions are erected. Price pressures from supply chain bottlenecks will likely begin to unwind in the new year as trading conditions normalise. In addition, shelter price base effects from 2021 will likely lead to a disinflationary backdrop, as a more meaningful acceleration seems unlikely as rising affordability concerns may limit house and rental price appreciation.  

[1] All performance metrics are stated in I Class terms.