A global wealth organisation has nominated flawed economic forecasts concerning elements such as inflation, and subsequent inaction regarding portfolio management, as the chief risks investors face in 2022.
“What we’ve seen over the last year or so is that expectations around the outlook for inflation has consistently moved away from it being largely transitory to considerably less transitory and as central banks have revised their expectation of this, their expectations of tightening [their monetary policy] has increased considerably,” JP Morgan Asset Management macro strategies team portfolio manager Josh Berelowitz noted.
“There are many areas where we do see current inflation levels as somewhat transitory, particularly around the goods sector as supply chain imbalances end up unwinding, but to the extent that disinflation doesn’t come through, or takes longer to come through over the course of the year, and if the supply side of the economy continues to be tightened more than expected and unemployment falls faster and further than it has so far, then central banks will be forced to continue to tighten, and potentially even more aggressively than what’s current priced in,” he added.
“That’s a dynamic that I think will clearly be quite painful for risk assets.”
Further, the unpredictable nature of certain elements such as inflation means inaction by investors creates additional risks for the year ahead JP Morgan Asset Management global market strategist Kerry Craig said.
“The greatest risk is that investors just don’t change their investment thesis – that what has worked really well over the last couple of years as we’ve come through this pandemic is unlikely to do as well in the next couple of years,” he explained.
According to Craig investors need to consider dynamics such as higher inflation rates and higher interest rates as to how they approach markets in the immediate term.''