Top investing trends to watch in 2022

Source: VIA AP/Courtney Crow.

As the New Year approaches, so do “New Year’s business resolutions” – and if one of your goals is to start or improve your investments, here are some strategies and opportunities to unlock to 2022.

Recovery and recalibration

When considering smart investment strategies in 2022, a high-level understanding of the Australian economic context or “investor context” is a good place to start.

The recovery of the Australian economy from the Delta outbreak is underway, according to the recent statement on Monetary Policy issued by the Reserve Bank of Australia (RBA). The RBA also believes that the conditions are in place for a sustained global economic recovery. This is essential for Australia, given our reliance on exports to support economic growth.

The rollout of vaccination has laid the groundwork for a rebound in domestic demand, to the point that for the 2021/22 annual average, GDP growth is expected to be 3.25% and 5% for 2022-23, according to the RBA. This contrasts sharply with the contraction in economic activity in the September quarter of 2021, when NSW and Victoria faced heavy lockdowns.

Meanwhile, the RBA expects the unemployment rate to average just under 5% for the December 2021 quarter, before tightening to around 4% by December 2023. Rising oil prices fuel and rising housing construction costs pushed inflation higher in the September quarter, although the RBA expects ‘underlying inflation’ to moderate to around 2.5% d by December 2023.

Pandemic predictions

The RBA pointed out that there is still some uncertainty around these “central scenario” forecasts, as COVID-19 transitions from its pandemic phase into the more “endemic” chapter.

Higher vaccination rates can reduce COVID-related business uncertainty, boost household confidence, and support higher household consumption and greater private investment. Along with this scenario comes a glimmer of hope for less unemployment and a stronger labor market, pushing inflation above current forecasts.

On the other hand, there is always a risk of the emergence of a new variant of the virus or the decrease in the effectiveness of vaccines, which could tip the trend towards a weaker economic trajectory. This would depress consumer confidence, reducing household consumption as well as private investment. It could also deflate changes from a resurgence in travel, weaken services trade and increase unemployment. If this is the 2022 scenario, inflation could stay below 2% for the next two or three years.

investment crystal ball

The current RBA economic outlook statement paints a relatively bullish financial picture of the national economy. The statement refers to a fairly strong pipeline of public and private projects, including public engineering works, a record number of residential housing starts in the June quarter and robust non-mining commercial investment on the rise through 2022. Meanwhile, mining investment is expected to increase slightly in coming years as miners seek to maintain production at current high levels.

Government consumption, in the form of the National Disability Insurance Scheme and spending related to Australia’s aging population, is increasing, while exports are expected to grow strongly over the next few years, along with travel and education exports in 2022 , as a consequence of the earlier than expected reopening of international borders. Increased rural exports, due to strong global demand and continued favorable weather conditions, boosted wool and crop production and resulted in herds rebuilding faster than expected.

Wage growth is expected to strengthen to 3% by the end of 2023 – the fastest pace since 2013, as the unemployment rate nears 4%. Additionally, Governor Lowe has said in recent days that official interest rates are unlikely to rise in 2022 and that the first increase may not occur until 2024.

Australia’s Investment Hotspots

With all that advice in mind, here’s a look at some of the best sectors and things to invest in for the coming year.

  1. Equity investments: andThe economic scenario outlined by the RBA is a positive framework for specific equity investments.
  2. Health services: youDemand for healthcare services is driven by demographics, and ongoing government spending on an aging population is therefore positive for Ramsay Healthcare.
  3. Travel and Education: if all goes well in terms of continued pandemic recovery, travel and education exports are expected to grow in 2022 as international borders open earlier than expected. IDP Education, as Australia’s largest provider of international student placement services, is likely one of the beneficiaries of this outcome. The same goes for Qantas, which is strategically positioned to benefit immediately from the reopening of skyways to international travel, for which there is considerable pent-up demand.
  4. Residential: DCord residential starts in recent months are supporting Australia’s largest supplier of building and construction materials, Boral. The tightening trend in the labor market should translate into an increase in the number of job vacancies. This is positive for the earnings outlook for Australia’s largest recruitment agency, SEEK.
  5. Mining: youhe outlook for a sustained global economic recovery is positive for Western Areas Limited, a nickel-focused base metals explorer and producer with a portfolio of operating and emerging nickel mines. The growing global demand for stainless steel and the rapid emergence of the electric vehicle battery market are tightening the demand for nickel globally.

think big

Given the pandemic recovery and the recalibration journey ahead, an investment strategy based on favorable macroeconomic trends, combined with a focus on quality companies, with prudent debt levels and proven management, opens the path to investment success.

If you have a clear understanding of the economic environment and sentiment for 2022 and are investing in one or more of these points, next year should open up some interesting investment opportunities.