CIO Outlook 2022 | Wealth Management | Deutsche Bank
No quick fixes: our 2022 outlook

Our Annual Outlook considers whether we should view 2022 as a transition year, enabling investors to position portfolios for the challenges ahead.

Inflation and central banks will be in focus. This should be the year where central bank policy really starts to change gear – with other central banks starting to follow the Fed’s line on tightening. But there will be plenty of other regime shifts underway too (in terms of inflation, climate, geopolitics and technology, amongst others). 

 

All this change will make for an environment where complacency around any “baseline” scenarios should be avoided. The pandemic has already shown us that full and quick fixes to complex problems are rare. We should view 2022 as a transition year, enabling investors to position portfolios for the challenges ahead.

 

Economic recovery from the lows of mid-2020 was never going to be completely straightforward. It has required high levels of both monetary and fiscal policy support. The world has changed over the last two years and many economies are still struggling to readjust.

 

High rates of inflation are an important symptom of this readjustment process. To a large extent, they reflect a mismatch between the recovery of demand and supply. We can see this in disruption to global production and supply chains but also in labour markets.

 

Fixing such mismatches will not stop the process of change: the world economy is a dynamic place. To paraphrase what the ancient Greek philosopher Heraclitus is supposed to have said: it is impossible to step in the same river twice. The river is different and you as a person are different too. The inflation “river” is always changing with different drivers; your own personal inflation expectations are changing too.

 

What change means is that effective risk management of portfolios needs to complemented by longer-term considerations of portfolio aims and composition: you need to think in a structural, rather than reactive, way. I think that there are two essential components to this. 

  1. This is an important time to focus on strategic asset allocation. Using market timing around such complex processes of change won't be enough, with an effective strategic asset allocation likely to prove a much more effective and reliable source of long-term returns. This may also be a less stable investment environment than first appears. Financial repression (artificially low or negative real interest rates) is clearly here for some time to come. But even relatively small changes in interest rates can have major direct and indirect effects on asset classes. We should also not assume that a very traditional asset allocation (e.g. the classic 60/40 equity/bond allocation) will work well. More sophisticated approaches will be needed.
  2. Environmental and ESG issues more broadly (i.e. including social and governance aspects) will get even more important for portfolios. Environmental issues are now firmly fixed centre-stage in global policymaking, and the implications for investors go far beyond higher rates of inflation. Whatever your stance is here, potential risks (e.g. around stranded assets) have to be faced up to. The switch to a carbon-neutral economy will also, of course, create many interesting opportunities. ESG-related and other long-term investment themes are discussed later in this publication. 

As I said above, 2022 should be viewed as a transition year as the global economic and investment environment evolves in search of a new reality. Acting now on strategic asset allocation and ESG in portfolios should help capture this process of change.

 

Wishing you a successful and wealth-creating investment year. 

 

Christian Nolting 
Global CIO

 

Share: politics and trade competition | wealth management
Ten themes for 2022 – Theme 1

Politics: sharing pains

Competition for trade and natural resources continues with environmental issues and redistribution of resources within economies important too.

Economy: running hot | wealth management
Theme 2

Economy: running hot

Strong growth rates in 2021 likely to be followed by only a slight moderation in 2022. But this will be a subtly differentiated recovery, with implications for FX and other asset classes.

Asian economy in 2022 | wealth management
Theme 3

Asia: the eye of the tiger

The region's economic dynamism will make for an exciting 2022 after a challenging 2021. Chinese economic stabilisation is likely to benefit many regional assets and Indian growth should be strong.

Inflation outlook 2022 | wealth management
Theme 4

Inflation: the rhino in the room

Price rises are a serious problem, are already disruptive and contain a number of long-term risks. We are unlikely to go back to an ultra-low inflation regime.

Monetary policy in 2022 | wealth management
Theme 5

Monetary policy: twilight fears

High inflation creates multiple problems for central banks and reactive policy could further unsettle markets. The likely hawkishness of central banks should not be overstated.

fixed income portfolio | wealth management
Theme 6

Fixed income: shifting sands

Volatility prompted by policy change may challenge the role of fixed income in portfolios. Some markets will be well supported but be aware of the risks.

asset class outlook 2022 | wealth management
Theme 7

Equities: real(istic) returns

The asset class outlook still looks generally positive, but returns may be lower than in 2021. Cyclical and geographic rotations during 2022 could have an impact.

commodities outlook 2022 | wealth management
Theme 8

Commodities: green growth

Commodity price volatility may decline as economic reopening pressures ease. Creating a green infrastructure could boost demand for energy and some industrial commodities.

real estate outlook 2022 | wealth management
Theme 9

Real estate: still building

The sector offers some scope for further gains, but sectoral and geographic differentiation is important. Materials and labour costs may impact supply in some markets.

macro fundamentals | wealth management
Theme 10

FX: macro matters

Worries about U.S. inflation and the likely policy responses have driven up the USD. But other policy and macro fundamentals could start to work against the currency in 2022.

Download our Annual Outlook 2022

Our full CIO Insights report “Annual Outlook 2022: No quick fixes" is available to download. Please refer to the Important Notes at the end of the report for disclosures and risk warnings.

 

 

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To view a mobile-optimised version of the full report (German version), please click here.

 

To view a mobile-optimised version of the full report (Spanish version), please click here.

 

To view a mobile-optimised version of the full report (Italian version), please click here.

 

To view a mobile-optimised version of the full report (French version), please click here.

 

To view a mobile-optimised version of the full report (Dutch version), please click here.

 

To view a mobile-optimised version of the full report (Simplified Chinese version), please click here.

 

To view a mobile-optimised version of the full report (Traditional Chinese version), please click here.

Past performance is not indicative of future returns. Forecasts are not a reliable indicator of future performance. Your capital may be at risk. Readers should refer to disclosures and risk warnings at the end of this document. Produced in December 2021.

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