This email hit earlier this morning and is a PDF of a single page covering each theme, topically, and I’ve included one below which caught my eyes … From DB
Is covid the only theme that matters? That is not the right question. Rather, covid is now the backdrop against which the big themes are evolving in economics, finance, and corporates.
So what themes matter in 2022? Of course, we address the big macro topics – the risk of the global economy overheating given stimulus measures and the change in attitude of central banks towards employment goals. Then there is how tight labour markets may further boost inflation. A flow-on effect is higher bond yields and the end of free money that has propped up markets since the financial crisis. Stock markets may not crash, but they could witness the return of fundamental investing.
Corporates, in 2022, have new problems – in addition to labour shortages. For two decades, returns have been generated by rising profit margins and cheap debt. Both those things may reverse in 2022. Competition regulators are flexing their muscle and, to compensate, managers will have to rediscover their operational mojo. That means generating more sales from existing assets.
Does any corporate theme matter in a shortage economy? A good question with a contrarian answer. Basically, we see an inventory glut in 2022. Manufacturers are going full tilt, while retailers are beginning to over-order.
ESG has been turbo-charged by covid. The big beneficiary in 2022 will likely be ESG bonds, particularly sustainability-linked bonds. Investors love the story, customers love the story, and corporates are piling on board.
Away from the spotlight, several other themes could have serious repercussions in 2022. One is that central bank digital currencies will take a massive step forward with some countries planning to go live in 2022. Meanwhile, we think most people underestimate how the growing militarisation of space will ratchet up geo-political tensions. Between anti-satellite missiles and growing budgets for military space divisions, the worrying thing is that the benefits of space supremacy are now so great that there are reasons why countries may push back on any new treaty.
More to follow …