ABN AMRO Private Banking: above-average growth in 2022, at more subdued returns

• 2022 should be another year of above-average growth, after world economy peaked in 2021

• Overweight position in equities main driver of returns

• Increased volatility and more subdued returns expected

Equities: positive outlook, but markets more volatile

ABN AMRO Private Banking today released its 2022 Investment Outlook, The path from the peak. In it, ABN AMRO’s private banking arm remains positive about equities for the first half of 2022 (overweight), as both economic forecasts and the corporate earnings outlook are robust. That said, the private bank points out that economies have now peaked and that central bank policies will likely diverge, causing greater volatility in the financial markets and resulting in more subdued investment returns.

“Having passed its peak, the global economy will continue to show above-trend growth into 2022,” Richard de Groot, ABN AMRO’s Global Head Investment Centre, said. “Mainly this will be driven by the US and European economies, with conducive factors including accommodating financial conditions, supportive fiscal policies and corporate earnings growth in the high single digits. Inflation is a risk, of course, particularly in the US, but we expect to see this normalise as 2022 progresses. Supply-side issues should dissipate gradually.”

Preferred sectors: industrials, consumer discretionary and materials

ABN AMRO Private Banking is keeping its slight cyclical bias in its equities portfolio and reiterates its sanguine take on the industrials, materials, financial services and consumer discretionary sectors (overweight). In addition, IT (neutral) and health care (slightly overweight) should continue to benefit from long-term trends such as digitalisation and an ageing population. The bank is more cautious (underweight) about the communication services and consumer staples sectors. The energy sector is also underweighted: the bank expects oil and gas prices to remain high for now, but to edge down in the course of 2022. From a regional perspective, ABN AMRO Private Banking is opting for a balanced stance, keeping its view neutral on all three equity regions – the US, Europe and the emerging markets. In terms of themes, it is flagging investment opportunities in innovative companies facilitating the technological transformation in health care.

Riskier bond sectors preffered

Bonds (underweight) continue to feature in investment portfolios, despite negative interest rates on eurozone government bonds. The bank has a preference for riskier bond sectors that command higher potential returns. Richard de Groot commented: “We expect financial conditions to remain healthy, as global yield and credit markets are deep and highly diverse. This wide array of bond instruments and markets means that various subsectors respond differently to economic signals and company-specific developments. High-grade corporate bonds, high-yield bonds and emerging market debt (EMD) are looking at potentially higher returns and we see opportunities for investors.”

Euro losing ground relative to US dollar

ABN AMRO Private Banking expects the euro to weaken further against the US dollar (EUR/USD), as the Federal Reserve (Fed) looks set to start raising interest rates well before the European Central Bank (ECB). It expects the Fed to taper its asset purchases in the first six months of 2022 and then raise its official rates in three increments in 2022, starting in or around June. The ECB, by contrast, has made it clear that no rate hikes are on the cards for 2022. ABN AMRO Private Banking reckons this monetary divergence will weaken the EUR/USD rate further and that this will end up at around 1.05 by the end of 2022.