1162569411

Investing in the second half and beyond: It’s a whole new ballgame

Nick Samouilhan, PhD, CFA, FRM, Multi-Asset Strategist
Andrew Sharp-Paul, Investment Director
2022-12-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.

After a painful (and largely unexpected) first half of 2022, what lies ahead? Multi-Asset Strategist Nick Samouilhan and Investment Director Andrew Sharp-Paul offer their perspectives on the second half outlook and some actionable takeaways, respectively.

Key points

  • Bottom line for investors: Stay opportunistic.

First half of 2022: best-laid plans often go awry

It’s fair to say that, from an investment perspective, 2022 has not turned out the way most investors expected six months ago. After two-plus years of pandemic-induced lockdowns and uncertainty, the year began with optimism that the world was finally going to move “beyond COVID.” With high pent-up consumer demand, low goods inventories that needed rebuilding, and general economic buoyancy in the air, there was widespread confidence that growth this year would be strong and resilient. 

But the thorny problem of rapidly rising inflation meant that 2022 was also going to be about policy “normalization” — global central banks raising interest rates, after years of extremely loose monetary policy, to combat inflation. However, markets initially seemed to believe that central banks could effectively address inflation without significantly denting economic growth. Ideally, such a scenario would have delivered a year of soaring equity markets, robust growth, and rising bond yields. Needless to say, that hasn’t entirely played out so far this year.

Second half of 2022: where do we go from here?

Looking ahead, we believe the global macro and market landscape is likely to be dominated by four high-level themes:  

1. A changed world: What a difference two years make

As the world hopefully gets past COVID-19, it will not be returning to the same one we left behind in early 2020: COVID has spawned, fast-tracked, and occasionally obscured many fundamental structural transformations to the global economy and markets that are now beginning to have material impacts. For example:

  • Many growth-oriented companies will benefit from the worldwide acceleration in digitalization spurred on by COVID over the past two years. This inexorable march toward a more digital future is likely to continue apace in many key areas of the global economy — enterprise, finance, health care, education, and automation — with bouts of market volatility providing potential opportunities to invest in the long-term “winners.” 
  • In addition, the global decarbonization transition and increased focus on the threats posed by climate change also gained traction as COVID tested the resilience of our planet. This has shone a favorable spotlight on companies that are prioritizing sustainability and doing their part to help the world mitigate or adapt to the multigenerational challenges associated with climate risk. 
  • Nearer term, fallout from the ongoing Russia/Ukraine conflict has shifted many world governments’ attention toward energy security, including weaknesses in global fossil-fuel supplies, which should confer further growth tailwinds to innovative companies within the renewables and electrification industries.

Look for investment solutions that focus on:

icon-growth-250x250

Growth companies benefiting from swift digitalization

icon-substain-midyear

Sustainable companies tackling climate change risks
 

icon-renew-midyear

Innovators in the renewables and electrification spaces

2. Inflation: Is the new bogeyman here to stay?

The global inflation outlook is front and center for many investors, but complicated and far from clear as of this writing. For starters, inflation readings have now been higher for much longer than many observers (including the Fed and other central banks) could have foreseen, making future inflation forecasts tricky at best. That being said, we do have a view on the issue.

While we see plausible reasons to believe global inflation may peak in the near term, we would also caution investors to prepare for the distinct possibility that inflation may have staying power. Indeed, it may have become an enduring feature, not merely a temporary “oddity,” of the macroeconomic setting. With that in mind, from an investment standpoint:

  • Investments in commodities and other assets that can potentially act as an inflation hedge, such as property or inflation-linked government bonds, may be helpful inflation-fighting additions to a portfolio.
  • Persistently high inflation could also help usher in a more volatile macro environment, with interest rates and currencies behaving more erratically than in the past, opening up greater opportunities for dynamic fixed income and macro investing strategies.

Look for investment solutions that focus on:

icon-commodities-midyear

Commodities such as oil, gas, metals, and agricultural products

icon-inflation-midyear

Inflation-linked government bonds and real estate
 

icon-dynamic-midyear

Dynamic fixed income and macro investing strategies

3. Growth forecast: Cloudy with a chance of recession

The current consensus outlook for economic growth is that there really is no consensus. At worst, stubbornly high inflation and other headwinds could push the global economy (and many national economies) into recession later this year or in 2023. While recession is not our base case, the probability has risen to the point that it cannot be ignored. At best, we believe a marked global slowdown that stops short of a full-on recession is likely to take hold. The culprit for this less-than-upbeat outlook is twofold:

  • Rising interest rates are already weighing on some interest-rate sensitive areas of the global economy, such as consumer spending, the booming housing market, and business investment.
  • Elevated inflation, especially lofty energy costs, is dampening consumer sentiment and spending, forcing many households to rebudget accordingly, while wage increases are battling to keep pace. 

This world of higher inflation and interest rates, with slower growth to boot, will ultimately expose which companies are well run and equipped to weather such a “storm,” versus more vulnerable companies whose businesses have become dependent on strong growth and cheap funding. That’s why, for investors, it’s critical to choose active investment managers with expertise in individual stock selection.

Look for investment solutions that focus on:

icon-quality-midyear

Quality, "all-weather" companies with stable earnings
 

icon-income-midyear

Dynamic fixed income and macro investing strategies
 

icon-return-midyear

Total return investing strategies
 

4. Market volatility: Think of it as a friend, not a foe

The murky outlook for global inflation, interest rates, and economic conditions has led to an unwelcome uptick in market volatility across multiple asset classes. And the volatility may be amplified going forward by several broad structural changes, as markets feel the pinch of the “easy money” era coming to an end, along with a multiyear deglobalization trend, aging demographics (particularly in Europe, Japan, and China), and government responses to income inequality. Against this backdrop, periodic market gyrations are all but inevitable, in our view.

For investors seeking solutions, we believe there will likely be (and should be) renewed value placed on actively managed investment strategies that can filter out the “noise,” identify attractive opportunities, and complement passive index or ETF exposures. Investors might also consider flexible or unconstrained approaches that can aim to capitalize on market volatility.

Look for investment solutions that focus on:

icon-active-midyear

Active management to complement passive exposures

icon-flexible-midyear

Flexible or unconstrained investment approaches
 

icon-return-midyear

Total return investing strategies

Bottom line for investors: stay opportunistic

For the average investor, today’s markets may seem very uncertain and even hazardous at times, but it’s important to remember that there are always investment opportunities to be found. You just have to know where to look, partner with an asset manager you can trust, and arm yourself with the proper portfolio tools.

Experts

Related insights

Showing of Insights Posts
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Driving growth with quality controls in uncertain markets Continue reading
event
Article
2023-10-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
The search for income: Three bright spots amid today’s volatility Continue reading
event
Article
2023-09-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
2022 Asia Pacific Investment Forum: The energy complex Continue reading
event
Event replay
2023-09-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
From autopilot to active pilot: How investors can navigate the future Continue reading
event
Quick Take
2023-06-30
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Global convertibles: Poised to benefit from five structural tailwinds Continue reading
event
Quick Take
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Bank loans: Resiliency amid volatility Continue reading
event
Quick Take
2022-07-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.
Russia/Ukraine: Transformational, not transitory Continue reading
event
Article
2022-07-31
Archived info
Archived pieces remain available on the site. Please consider the publish date while reading these older pieces.

Related funds

1408452189
US Quality Growth Fund
VIEW DETAILS
13771-672161203-runner
Credit Income Fund
VIEW DETAILS
City view from top of building
Global Property Income Fund
VIEW DETAILS
multi-asset-high-income-322x182
Multi-Asset High Income Fund
VIEW DETAILS
solar-panels-covering-hill
Next Generation Global Equity Fund
VIEW DETAILS

DISCLOSURES

Past results are not necessarily indicative of future results and an investment can lose value. Funds returns are shown net of fees.
Source: Wellington Management

© 2022 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Overall Morningstar Rating for a fund is derived from a weighted average of the three, five, and ten year (if applicable) ratings, based on risk-adjusted return. Past performance is no guarantee of future results.

The content within this page is issued by Wellington Management Singapore Pte Ltd (UEN: 201415544E) (WMS). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. Information contained on this website is provided for information purposes and does not constitute financial advice or recommendation in any security including but not limited to, share in the funds and is prepared without regard to the specific objectives, financial situation or needs of any particular person.

Investment in the funds described on this website carries a substantial degree of risk and places an investor’s capital at risk.  The price and value of investments is not guaranteed and may fall or rise. An investor may not get back the original amount invested and an investor may lose all of their investment. Investment in the funds described on this website is not suitable for all investors. Investors should read the prospectus and the Product Highlights Sheet of the respective fund and seek financial advice before deciding whether to purchase shares in any fund. Past performance or any economic trends or forecast, are not necessarily indicative of future performance. Some of the funds described on this website may use or invest in financial derivative instruments for portfolio management and hedging purposes. Investments in the funds are subject to investment risks, including the possible loss of the principal amount invested. None of the funds listed on this website guarantees distributions and distributions may fluctuate and may be paid out of capital. Past distributions are not necessarily indicative of future trends, which may be lower. Please note that payment of distributions out of capital effectively amounts to a return or withdrawal of the principal amount invested or of net capital gains attributable to that principal amount. Actual distribution of income, net capital gains and/or capital will be at the manager’s absolute discretion. Payments on dividends may result in a reduction of NAV per share of the funds. The preceding paragraph is only applicable if the fund intends to pay dividends/ distributions.  Performance with preliminary charge (sales charge) is calculated on a NAV to NAV basis, net of 5% preliminary charge (initial sales charge). Unless stated otherwise data is as at previous month end.

Subscriptions may only be made on the basis of the latest prospectus and Product Highlights Sheet, and they can be obtained from WMS or fund distributors upon request.

This material may not be reproduced or distributed, in whole or in part, without the express written consent of Wellington Management.