It's been a stormy start to 2022 for the majority of S&P/ASX 200 Index (ASX: XJO) shares and that volatility could be here to stay according to this expert.
The ASX 200 has fallen 2.6% since the final close of last year. This month has seen the index rebounding slightly, gaining 3.9% over February so far.
But investors might want to be prepared for more drama. T. Rowe Price chief investment officer and head of global multi-asset Sébastien Page, has warned of a slump in global markets.
"[I]t is too early to talk of a recession," he said. "[But] the possibility of an economic slowdown beyond what has been priced into financial markets seems to be increasing.
"The new environment will be difficult to navigate – but it will also provide some excellent opportunities for stock pickers."
Let's take a look at what the professional believes investors should keep an eye out for in 2022.
Could this rock the boat for ASX 200 shares in 2022?
For those exhausted by the impacts the cycle of COVID-19 outbreaks and lockdowns has had on the ASX 200 over the last 24 months, Page's analysis will be music to your ears.
"Although it is too early to say that we are entering a post‑COVID world, it is clear that the pandemic is no longer the dominant driver of markets that it has been," he said.
Rather than COVID-19, Page says price fluctuations will likely be the result of "a looming [United States (US)] Federal Reserve rate‑hiking cycle, tightening liquidity conditions, and the unwinding of pandemic‑era economic distortions".
And while expectations the Reserve Bank of Australia could soon increase interest rates have likely born many ASX 200 shares unrest, the expert says that globally, rate rises often don't bear any major downturns.
"We can observe that Fed rate hikes alone do not usually derail financial markets," said Page. He continued:
Analysis by our Multi‑Asset Division shows that out of the 21 rate‑hiking cycles since 1974, the US equity market has delivered a positive return 17 times—an 81% hit rate—in the 12 months after a rate hike and 16 times— a 76% hit rate—in the first six months after the first hike.
So, what is worth worrying about? Well, Page says investors might want to keep an eye on inflation.
ASX 200 shares could be hit hard if growth factors such as low interest rates, pent-up demand, and pandemic-related stimulus come to an end.
"As the economy is expected to slow, inflation continues to fuel higher costs," he said.
"Although rising costs in some areas may diminish in time, in other areas – for example, labour costs – they are beginning to look more permanent.
"The more permanent inflation becomes, the bigger dent it will have on consumer confidence and, ultimately, on consumer spending and corporate profits."
Which ASX 200 shares could be buys?
While Page didn't give any indication on which ASX 200 shares could prove buys in 2022, his Australian colleagues provided some insight earlier this month.
Randal Jenneke, head of Australian equities at T. Rowe Price, flagged iron ore giants BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) as 2022 buys.
He believes that as many global markets slow, China's growth will likely continue unabated. Thus, demand for the steelmaking ingredient will strengthen.
Meanwhile, T. Rowe Price investment analyst Nick Vidale warned ASX 200 investors to steer clear of big bank shares like Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB).
