5 investing themes to watch in 20225 investing themes to watch in 2022

To kick off the new year, co-CEO Leighton Roberts was joined by Victoria Harris, Portfolio Manager at Devon Funds and Founder of The Curve, and John Berry, co-founder and CEO of Pathfinder Asset Management, to discuss some of the major themes and events that might affect share markets in 2022.

Watch the full panel discussion

1. A world with high inflation and interest rates

Inflation has risen over the past two years, mainly due to how governments have responded to the pandemic. Rising inflation is generally a sign of a healthy economy. However, as the price of everyday items increase, your money can’t stretch as far as it used to and central banks will usually step in to keep the rate of inflation under control. 

Interest rates around the world are set to rise in 2022, making it more expensive to borrow money. For individuals, this can mean higher credit card bills and mortgage payments, leaving them with less spending money. For businesses, it can become more expensive to take out or repay loans, meaning they may have less money to fund new ventures or invest in their business.

Some industries cope better than others during periods of high interest rates. For example, businesses in the financial sector (like banks and insurance companies) can benefit from the increased revenue they receive from fees and interest. Whereas tech companies (especially ones that aren’t profitable yet) can become less favourable with investors as higher interest rates can lead to lower expectations of a company’s future cash flows when measured in today’s dollars, resulting in a lower valuation of the company. 

While fluctuating levels of inflation and interest rates can affect the performance of the market, businesses do try to account for this when planning for the future. So, if you're investing for the long term, you can give yourself more time to ride the ups and downs of the economy. 

2. Rotating from growth to value investing 🧮

For the past decade, growth stocks (shares in companies with sales and earnings expected to grow at a faster rate than the market average) have outperformed value stocks (companies considered to be undervalued based on their share price, relative to metrics like earnings and revenue). Growth stocks also surged during 2020 when the share prices of large, technology growth companies soared to record highs.

Historically, when interest rates are set to rise and people are concerned that the market might be overvalued, investors have been found to switch from investing in growth stocks to value stocks. We saw signs of this rotation happening in the first half of 2021 when COVID-19 vaccines were approved and the market began to anticipate businesses reopening—value stocks rose in price while growth stocks took a dip. However, the shift was cut short when the spread of the Delta variant dampened the market’s economic outlook and growth stocks began to rise again. 

Some believe that the great rotation will continue in 2022 and value stocks will dominate over growth stocks, while others think growth stocks shouldn’t be overlooked. As always, you don’t need to invest with an ‘all or nothing’ approach. Doing due diligence and making sure your portfolio is diversified are some of the ways to keep your investment risks in check. ✅      

3. A transition to a sustainable future 🌳

The first three quarters of 2021 saw record investment into global sustainable funds, and a focus on sustainable investing is thought to continue in 2022. 

Last year, we saw significant movement in the electric vehicle (EV) and renewable energy industries as the world works to move away from carbon-based fossil fuels. Moving forward, some experts predict that the conversation around climate change will broaden to other issues, and investors will continue to keep an eye on emerging industries in the climate space.  

It’s also thought that investors may become more critical of sustainable investments as companies and funds are increasingly being called out for ‘greenwashing’. However, until regulators step in to enforce a standardised way of reporting an investment’s environment, social, and governance (ESG) practices, investors will need to rely on their own due diligence to avoid greenwashers.  

4. Travel and ‘the great reopening’ 🧳

As countries closed their borders to foreign travellers during the pandemic, travel companies like airlines, booking platforms, and accommodation providers generally experienced a sharp fall in share price. 

Many believe that the performance of travel companies in 2022 may depend on whether countries reopen their borders for international travel. If many can travel freely, these companies might benefit from pent-up consumer demand, but if new COVID variants enter the scene or travel restrictions linger, it could be another uncertain year for the sector. 🤔  

There’s also concern that some companies won’t recover, even if travel can fully reopen. Many of these businesses have had little to no cash flow for a significant period of time, and have had to figure out financing solutions to keep themselves afloat (like taking on debt, issuing more shares, selling equipment or property, or laying off staff). These arrangements can take a toll, and it can be hard to know how the business will fare in the long run. You can stay in the loop with company announcements and results via the company or relevant exchange’s website. 

5. Reimagining the workplace 💭

For many businesses, the pandemic accelerated a transition to flexible or fully remote working. Working from home became the ‘new normal’, and platforms like Slack, Zoom, and Team Meets replaced traditional ways of communicating with co-workers.  

As some employees returned to work, others were reluctant to fully revert to old ways of working (or reluctant to go back to work at all). This shift has opened up demand for immersive technologies in the workplace, with companies like Microsoft and Cisco unveiling their takes on immersive conferencing and collaboration tools. Facebook’s rebrand to Meta also signaled a shift towards embracing immersive technologies. However, some note that the metaverse won’t be fully adopted overnight, and many businesses will probably use 2022 to figure out where (or if) their business fits in a virtual reality world. 

Beyond hybrid work trends, there are also wider conversations going on about how automation and artificial intelligence (AI) will affect the workforce. As technology evolves, machines are set to take over more tasks in the workplace. Some are optimistic that AI will drive innovation and growth in many existing industries—ultimately creating more (human) jobs. But it's also expected that workers will need to learn new skills to adapt with many changing sectors.