UK expected to be best performing region next year
Rising interest rates seen as greatest threat
Investment company managers have tipped renewable energy infrastructure to be the best performing asset class of 2022, according to the annual poll conducted by the Association of Investment Companies (AIC). The poll was carried out with AIC member investment company managers between and 8 and 30 November 2021.
Renewable energy infrastructure attracted 18% of managers’ votes, with mid-cap equities following close behind with 17%. When asked to predict the best performing region in 2022, a quarter (25%) selected the UK, while a fifth (20%) chose emerging markets. There was also support for Asia Pacific excluding Japan and the US (both at 15%).
On a five-year view, managers’ favoured regions are similar. The UK, Emerging Markets and Asia Pacific excluding Japan are seen as offering the most attractive medium-term opportunities, each receiving 20% of the votes, followed by the US (17%).
Inflation and interest rates
Managers’ greatest fear is interest rates rising, with 20% seeing this as the biggest threat to the stock market in 2022. Nine out of ten managers believe interest rates will go up in 2022. Linked to this, the second biggest threat in 2022 is a rise in inflation (17%).
However, an extended period of high inflation is seen as a long shot. Only 15% of managers expect inflation to top 5% over the next three years, while 65% reckon this is unlikely or very unlikely.
Best performing sectors in 2022
Alternative energy and REITs are the two stock market sectors expected to perform best in 2022, each receiving 12% of managers’ votes.
On a five-year view, managers think Software and Computer Services presents the most attractive opportunities (35% of respondents selected the sector).
Where will the FTSE close at the end of 2022?
Investment company managers are optimistic on the prospects for global stock markets in 2022, with 75% believing they will rise versus 10% expecting a fall. When asked about where they think the FTSE 100 will close at the end of 2022, 50% of managers thought it would close between 7,500 and 8,000 – higher than its current level of around 7,200. Only 5% thought it would close below 7,000 and an optimistic 5% predicted a close above 8,000.
Causes for optimism
Managers believe the greatest cause for optimism in 2022 is the threat from COVID-19 receding, gaining 21% of their votes. However, this survey was completed before the new variant, Omicron, was identified. The second greatest cause for optimism was supply chain problems receding (19%), followed by technology driving economic growth (16%).
Annabel Brodie-Smith, Communications Director at the Association of Investment Companies (AIC), said: “Despite the challenges of 2021, investment company managers are optimistic about the prospects for markets in 2022, believing the threat from COVID is receding and supply chain problems are easing. Following the focus on climate change at COP26, it’s encouraging that renewable energy is tipped to be the best performer in 2022.
“The joint best performing stock market sectors are expected to be alternative energy and REITs. The latter benefited from the increase in online shopping and this year’s opening up of the economy. The UK is tipped as the most attractive region next year, with half of managers believing the FTSE 100 will close between 7,500 and 8,000. Managers clearly remain concerned about the spectre of inflation, with higher inflation and interest rates being their main concerns for 2022.
“Of course, no-one has a crystal ball. Investors should focus on investing for the long term by creating a balanced portfolio which meets their needs – and, if in doubt, consult a financial adviser.”