Here’s what share market trends to expect in 2022

This year, we can expect volatility in share market trends and more investments in emerging markets, commodities, value stocks and gold, says Edge Financial Services. 

Last year, there were good returns globally, with only a handful of players responsible for the impressive gains. 

Twenty-five stocks make up 40% of the S&P 500 weighting, which is a stock market index that tracks the performance of 500 large companies listed on stock exchanges in the US. Any movements in their share price therefore has a significant impact on funds invested into global portfolios. 

Last year wasn’t without significant headwinds. China had regulatory crackdowns which affected tech giants such as Alibaba and Tencent.

There were global supply chain bottlenecks and energy and labour shortages which created significant disruption in the market. Towards the end of 2021, markets responded to the US Federal Reserve’s threat of tapering.  

Locally, the JSE performed well, but this was mainly on the back of strong commodity prices. SA Inc continues to struggle with high unemployment, poor education, low vaccine rollout and a lack of consistent energy supply.

The bubble burst in January 2022 due to an overvaluation of US stocks by as much as 40%. The worst was assumed to be over when the Nasdaq Stock Market in New York dropped by 16% year-to-date on the back of US inflation, but Russia’s invasion of Ukraine is hurting global markets.

This has prompted the sell-off of growth stocks, such as big tech, into the more boring, yet favourable value stocks, such as consumer staples, which tend to do better in times of inflation.

With strong vaccine rollouts and lockdowns subsiding in developed markets, sectors that were dampened by the pandemic such as leisure, travel and entertainment are starting to flourish again, and are providing further opportunities going into 2022. 

Emerging markets, excluding China, have set up a strong base to grow over the last year. In China, internet stocks Alibaba and Tencent, are starting to form a good base to start growing again.

The world may have seen equity flows into value regions such as China and emerging markets towards the end of last year and into 2022, but slow global growth and rising inflation could negatively affect emerging markets. 

SA Inc has done well in the past year and remains strong heading into 2022.

The MSCI SA, which measures the performance of large and mid-cap segments of the SA market, is up 13.7% year-to-date compared with a 0.74% average for emerging markets. However, food price inflation and the Russian conflict is expected to have an negative impact on SA.

Commodities are coming off of a strong 2021, and the world may be about to enter the next commodities supercycle. The last supercycle ended after the 2008 Beijing Olympics. 

Oil risk is on the upside from $100 to $120 a barrel, and when Russia began its invasion in Ukraine, it sent oil prices above $100 a barrel. The outlook for the rand/dollar exchange rate remains neutral and is expected to trade sideways going into 2022.

For insightful, trusted guidance on where you should invest your well-earned money, speak to your Edge independent financial adviser for further advice to help you navigate these uncertain times.

This article was paid for by Edge Financial Services.