The biggest risk to global growth and ASX 200 returns in 2022

Property investment makes up roughly 30% of China’s GDP.

| More on:
A worried man chews his fingers, indicating a share price crash or drop on the ASX 200

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 Index (ASX: XJO) is slipping in early afternoon trade, down 0.52%.

Still, the ASX 200 has been delivering historic gains as Australia and the rest of the world continue to recover from the early pandemic blows. Gains driven by strong economic growth across most developed nations.

Over the past 12 months the index is up 24%, setting a new all-time high on 13 August.

Year-to-date the ASX 200 is up 11%.

And that’s just the share price moves, mind you. These figures don’t include any dividend payouts.

While this indicates that many investors should have done well over the past year, the question now is, what to expect from the ASX 200 in 2022?

The almighty consumer

For the answer to that question, we turn to Ned Bell, Bell Asset Management’s chief investment officer.

Presenting at yesterday’s ‘Bell Asset Management – Global equities market update and outlook for 2022’ webinar, Bell offered some reasons for optimism, before turning to the biggest risk.

First, on the plus side for developed nations like Australia, is the strong consumer spending outlook.

According to Bell:

Pleasingly, consumer spending has been really robust this year. Particularly in the US, where the consumer effectively represents 70% of the economy. And that rebound that we’d expected has absolutely played out… To some degree the supply disruptions we’ve seen essentially have the effect of pushing some of that growth into next year.

Pushing some of the economic growth into 2022, Bell said, can be seen as a good thing.

However, he still expects global GDP growth to slow from 5.9% this year to 4.5% in 2022, noting there’s a real risk that this could be lower. And with lower economic growth, share markets like the ASX 200 are likely to offer lower returns.

The United States, the world’s biggest economy, is forecast to grow at 4%, down from 5.7% this year.

China, meanwhile, is forecast to see growth fall from 8.1% in 2021 to 5.5%, or less, next year.

And that, according to Bell, is the biggest risk to the global growth outlook for 2022.

The biggest risk to global growth and ASX 200 returns

Bell noted that GDP growth in the world’s second largest economy dropped from 7.9% in the second quarter of 2021 to only 4.9% in the third quarter just past.

China’s real estate woes are a particular worry for the global GDP growth outlook. Bell pointed out that property investment makes up roughly 30% of China’s GDP.

“It’s a big part of the Chinese economy,” he said. “As a reference point, the property market in the US, pre the GFC was about 18% at its high.”

Bell continued:

It’s no secret that China’s GDP growth has been a huge contributing factor to the global economy, particularly in the last 5 years. But one of the outcomes of what’s happening in the property market in China, as we speak, is that as that growth rate starts to moderate, it will eventually filter through to global GDP growth.

I’m not so much talking about China Evergrande Group (HKG: 3333) or the particular companies that have financial issues themselves. It’s more about to what extent that depresses growth [in major economies].

Most ASX 200 companies – think the big miners and banks – will perform better when global GDP is growing quickly, as it has been over the past 18 months.

So, it’s worth keeping an eye on how things play out in China over the coming weeks.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Economy

Woman checking out new iPads.
Retail Shares

What’s impacting ASX 200 retail shares today?

What is the latest consumer data showing?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.

Could this key metric signal more bad news for the Bitcoin price?

Crypto investors are keeping a close eye on the signals that could see the US Federal Reserve begin to ease…

Read more »

A woman sits on sofa pondering a question.
Share Market News

What goes up when the share market crashes?

If stocks are falling due to inflationary pressures, you may want to consider exchange-traded Treasury Indexed Bonds (eTIBs).

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Here is the RBA interest rate outlook according to ASX 200 banks

The RBA remains committed to bringing inflation back to its 2% to 3% target range.

Read more »

a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.
Bank Shares

How are ASX 200 bank shares responding to the RBA rate increase?

Before the RBA moved to raise rates from the all-time lows of 0.10% in May, the bank had not tightened…

Read more »

A boy holds a gold bar with a surprised look on his face due to falling ASX gold mining shares including the Newcrest share price

How are ASX 200 gold shares reacting to the RBA rate hike?

With interest rates heading sharply higher across most of the world, gold prices have dropped some 4% this calendar year,…

Read more »

Interest rate written with a green arrow going up.

ASX 200 jumps higher as RBA lifts interest rates by another 0.50%

RBA Governor Philip Lowe expects the Aussie economy to keep growing strongly this year, before the pace of that growth…

Read more »

oil and gas worker checks phone on site in front of oil and gas equipment
Energy Shares

‘Alarming’: ASX 200 energy shares lift despite increasing government pressure over supply outlook

The Australian Domestic Gas Security Mechanism can force Aussie energy companies to prioritise domestic sales over existing export markets.

Read more »