It's that time of year where analysts and investors ready themselves and their share investments for a fresh 12 months. This involves peering into what could be the underlying thematics during the year.
Though it is impossible to say what will occur in the future with high certainty the mental exercise can be productive. By mapping out a range of different factors we as investors can consider the possible outcomes.
One fund manager has shared his take on the 10 themes that investors should consider in 2022.
10 economic considerations when investing in shares this year
According to Morgan Stanley Investment Management's chief global strategist Ruchir Sharma, there are 10 economic trends that investors should be mindful of this year. While Sharma doesn't claim to have a crystal ball, his insights serve as a guide to what could shape markets in 2022.
China and declining birth rates
In his article, Sharma points out that declining birth rates have led to a tapering in global economic growth. Notably, the fund manager expects this 'baby bust' to further shrink the world's labour force — jeopardising the robustness of the working-age population across more countries.
Along a similar vein, the investor suggests China may have reached its peak as an economic growth powerhouse. The reasoning is partly attributed to the baby bust, but also increasing debt levels, and government intervention.
This is reflected in the People's Republic constituting one-quarter of global gross domestic product (GDP) growth in 2021. For comparison, the country previously accounted for one-third of GDP growth.
Inflation fears, green metals shifting gears
Many people have shown concern for their share investments as higher inflation threatens the economy. However, Sharma does not foresee the kind of double-digit levels of inflation that other market commentators have warned about. Rather, the fund manager expects technological deflationary pressures to persist.
On the other hand, the astute investor expects inflation of a different kind to continue — Greenflation. As we have seen across the ASX in the past year, companies associated with green metals have experienced stellar gains. The fund manager explains the reason behind this, with Sharma stating:
[…] green politics is reducing raw material supplies of all kinds. Investment in mines and oilfields has dropped sharply over the past five years. The result is "greenflation" in commodity prices, which just had their biggest yearly increase since 1973.
Less GameStop mentality, more physical reality
The GameStop Corp (NYSE: GME) fiasco of 2021 portrayed a moment in time when retail investor sentiment was skyrocketing. According to Sharma, millions of people dipped their toes into share investments in 2021 for the first time.
However, as expectations converge with reality, the fund manager anticipates more risk for shares that are more popular with retail investors.
Another area that Sharma believes has been mispriced by investors is the physical economy. While the market is captivated by the upcoming ambitions of the metaverse, this expert investor believes investors have shunned physical investments prematurely.
And the rest
The remaining four trends outlined by Ruchir Sharma include spiraling government debt levels, stubborn productivity, restrictive foreign data controls, and deflation in some 'bubbly' asset classes.
For the market to exceed its returns in 2021, the S&P/ASX 200 Index (ASX: XJO) will need to rise more than 13%.
