Standard Chartered advises investors to place greater emphasis on sub-asset allocations within equities in 2022, noting that a rotation from developed to emerging markets is not imminent.
Equities, alongside gold, were named as the most preferred asset class in 2022, according to a Standard Chartered report on the market outlook for next year.
The asset class is expected to outperform bonds and cash in 2022 but at a more modest pace compared to the last two years and with higher volatility.
Earnings growth will be the main driver of returns, especially given the historical performance in the six to 12 months before the start of a Fed rate hiking cycle.
EM Rotation Not Imminent
And within equities, Standard Chartered urges emphasized focus on allocations within the asset class as an increasingly key factor for performance, as opposed to simply investing in broad benchmarks.
The bank prefers developed markets (DM) like the U.S. and the Euro area over emerging markets (EM) despite favorable earnings momentum in the latter.
«While consensus economic and earnings growth expectations are beginning to turn in favor of EM over DM in 2022, we believe three conditions for an equity market rotation towards EM – U.S. dollar weakness, a significant turn in Chinese policy direction and an economic recovery led by widespread COVID vaccinations – are not imminent,» said Standard Chartered chief investment officer Steve Brice.
Equity Strategy
In addition to a developed market preference, Standard Chartered highlighted tailored opportunistic allocations for next year in areas such as tech in the U.S.; consumer discretionary and industrials in China; and tech, consumer discretionary, industrials and financials in Europe.
The bank also advised taking advantage of rising market volatility with equity long/short strategies and income generation.
