Year of the Tiger
With uncertainty hanging over markets, investors need to tread carefully in the Year of the Tiger. But as Ninety One’s investment professionals explain, there are abundant opportunities too.
Chapters
01
Macro assumptions02
Domestic policy03
Equities04
Fixed Income05
01
Macro assumptions
Investors must navigate a changing environment in the Year of the Tiger. The Multi-Asset team offers its macro outlook and provides an update on China’s policy priorities.
- Growth expectations have adjusted but surprises could still be to the downside. The effects of China’s policy tightening from early in 2021 and the attempts to cool the important property sector will continue to impact growth in the first half of 2022.
- Easier credit conditions. The process of easing credit conditions has started modestly. We expect that downside risks to growth will prompt a progressively more aggressive policy response.
- Back-pedalling on four of the five ‘policy pivots’ (see ‘Domestic policy’ for more on the pivots). Most of China’s five key policy shifts are expected to play out over the next 10 years. But four of them are likely to take a back seat in 2022 as the authorities’ priority shifts towards growth stabilisation. The one exception is environmental investment, which is a candidate for intensification to support growth.
- A weaker current-account surplus. Somewhat slower global demand and less demand for COVID-related goods in particular (where Chinese exports have been focused) will remove a big tailwind to China’s exports and to the Chinese currency. Eventual re-opening will revive capital outflows resulting from international travel.
- Stable consumer price inflation (CPI) and a sharp decline in producer price inflation. Chinese CPI is expected to remain stable at 1.5-2%, but producer price inflation is likely to moderate more rapidly than expected from elevated levels (from 13% now to 0% at the end of 2022), as we see the impact of weaker domestic and global demand and easing global supply constraints.
- A softer currency. The current strength of the CNY is expected to moderate over the year as monetary policy and relative growth rates between the US and China diverge, and the latter’s current-account surplus moderates. The arrival of a digital CNY has no immediate investment relevance.