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Macroscope | Value-seeking investors could make China source of market rally in 2022
- Affordable valuations and shifting capital will make China attractive as investors seek value in places where asset prices are less expensive
- People moving their money out of real estate and into financial assets could drive an equity and bond market rally this year
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Global investors ended 2021 with mixed feelings. While a strong and synchronised economic recovery, coupled with generous central bank liquidity, helped propel markets higher, there are still questions that leave many people apprehensive about what lies ahead.
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For a start, Covid-19 is still with us. Not long after its discovery, the Omicron variant has become the dominant strain in many countries, with a record number of infections across Europe and North America. Despite its comparatively mild symptoms, the lack of protection from existing vaccines has forced many governments to return to social and mobility restrictions, hindering consumer spending and travels during the holiday season.
Then there are the issues of inflation and impaired global supply chains. The hawkish message from US Federal Reserve chair Jerome Powell last month indicated a clear policy pivot towards combating inflation pressure that is no longer viewed as transitory.
What could help the Fed in this effort is a faster resolution of supply bottlenecks in areas where price increases have been the most rampant. The latest purchasing managers index numbers in Asia – showing shortening delivery times – and robust export growth of semiconductors are encouraging signs.
However, the jury is still out on the sustainability of these improvements as the raging pandemic could still disrupt production networks in many parts of the world.
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