Investors can expect equities to outperform bonds and cash, but are warned not to expect too much, according to a new report from Australia and New Zealand Banking Group (ANZ).
The volatile market that started 2022 has experts practicing what Lakshman Anantakrishnan, head of investment strategy at ANZ Private Banking, called “cautious optimism.”
“As 2022 gets underway, we maintain our broadly optimistic tone for risk assets but would warn against any expectations of double-digit returns from equities like those experienced in 2021,” Anantakrishnan said. “Rather, we commence the year with a mild overweight to risk assets based on cautious optimism and a belief that, despite more moderate returns in 2022, equities should continue to outperform bonds and cash.”
This expectation of moderate gains for equities is backed by Australia’s recent moves in the three weeks into January, removing border restrictions and keeping the economy open even as the Omicron variant takes hold of the nation.
In addition, ANZ Private claimed Australia has been leading the rise in inflation, with other major economies left behind. Anantakrishnan is also expecting the Australian GDP to rise by 5.1% – way ahead of US, Europe and China.
“This scenario represents our base case for 2022, and as always there are potential downside and upside risks to any setting,” Anantakrishnan said, naming more coronavirus mutations, inflationary pressures and central bank response as some of the most concerning factors to watch out for.
Should this happen, Anantakrishnan claimed there are still reasons to be optimistic.
“While there are downside risks to our cautiously optimistic outlook for 2022, any near-term pullback in markets is likely to signal a healthy correction from what are already ‘frothy’ global share markets,” Anantakrishnan said. “If conditions are attractive, it may even provide the opportunity to increase risk assets further.”
ANZ’s full report can be found here.
