The themes that may dominate in the next year (a continuation from late 2021) are inflation, interest rates and growth. Growth enhancing policies may recede, spare capacity in the economy is minimal and the re-opening growth surge is probably over. There is a lot of uncertainty as to how supply issues and labour shortages (and how long each may last) will affect outcomes. A fear is that labour shortages could result in wage growth which then results in higher inflation. These and other factors may determine how high inflation goes and how long it persists.

The inflation outlook may influence how quickly Government Central Banks raise official cash rates. Many expect major Central Banks to increase their respective cash rates this year. The level of interest rates in turn could impact on share prices (and other asset prices). We believe how far and fast interest rates rise will have a significant bearing on returns. Concerns around COVID continue to linger. Any geo-political developments could also surprise and affect returns.

The broad theme to start 2022 appears to be one of more optimism in the global economic recovery. Some research suggests the Omicron variant is much less deadly than Delta, giving markets confidence that the hit to growth from recently imposed COVID restrictions in some places (and more restrained consumer behaviour more generally) will be fleeting and the recovery will resume after a few months of disruption. There is little doubt though that whatever eventuates the markets could fluctuate, wildly at times. Rest assured, as we have mentioned previously, we are doing our best in these times of heightened uncertainty. The portfolios remain diverse and we focus on investments that we believe are more at the quality end of the spectrum.