It’s 2022 and, in a few months time, we will have endured 24 months of “emergency” reactions and restrictions. You know the history and current state of play, so I won’t bore you with that here. While there was a prevailing “feeling” that circumstances have been abnormally bad and, for some who have lost their jobs that is patently true, the Listed Assets markets have shrugged everything off.

Over the past three years most South African assets have experienced above inflation growth (ignoring the knee jerk dip of March 2020) and if you have not been watching main stream news, you’d probably feel that your portfolios had simply been doing their job.

For example, RSA Worldwide Multi-Asset funds averaged 46.3% growth over the past three years, while High-Equity Retirement Funds returned 35.9% (12% per annum in simple terms) and Low-Equity Retirement Funds yeilded 26.8% (or just below 9% per annum) so almost everyone – who ignores mainstream media – feels OK.

However, around the world we’ve been burning loads of High Octane Fuel in the form of abnormally low interest rates. Since 2009, when the US Federal Reserve lowered their Bank Lending Rate to, effectively, 0% we have witnessed a sustained period of artifically low rates around most of the central banks. This has fueled an adjustment in the way other assets are priced and to put it simply, when you cannot earn a return on cash the money must go elsewhere – into Stocks, Property and some Bonds. However, this had to end sometime.

So, will the low interest rate “punch bowl” be removed during 2022? The US Federal Reserve has indicated as much and while they will move very slowly, the medium-term trend must be UP. This may place an interim cap on USA stock prices, with most of the world following. Asia, however, has experienced lower stock prices during 2021 and may be the “rotation” play for aggressive investors. Plus Asia has room to lower interest rates.

The watch words, for 2022, will be Inflation and Liquidity. Prolonged inflation is expected because of pent up demand and supply chain “bottle necks” and liquidity might reduce in the West as those central banks taper down their Quantitive Easing programs.

So, we may well be returning to what passes for “normal” in the Interest Rate world and that might mean – as happens from time-to-time – we experience low growth in Western World Stocks, Property and Bonds. But, hey, the upside may mean that there will be something else on the news! HAPPY & HEALTHY 2022

Jim Millar, CIO, Financial Fitness Portfolios