Key global trends and sectors to watch out for in 2022
08:10, 7 January 2022
The year 2021 has been a tumultuous year for global financial markets with several record highs as well as uncertainty due to the discovery of the Omicron and IHU variants of Covid-19. Nonetheless, investors hopefully look forward to a better 2022.
A number of themes emerge for this year – rising interest rates being one of them, led by a more hawkish policy stance by the US Federal Reserve.
With most global central banks like the Bank of England and the European Central Bank showing reluctance to implement rate hikes and ease the ongoing Covid-19 stimulus packages, inflation has recently reached multi-year highs across the world.
Inflation remains a major concern
According to a report by Deutsche Bank, themes to watch out for this year included the risk of the global economy overheating caused by Covid-19 stimulus policies, as well as inflation being pushed up higher, due to a tightening labour market.
Global banks are also expected to shift their stance regarding employment goals. ESG bonds are speculated to take centre stage this year, as well as digital currencies backed by global central banks.
Craig Erlam, Senior Market Analyst at OANDA highlights, "The first thing to say is that what the last two years have taught us is how unpredictable life is through the pandemic. Omicron turned everything upside down for a brief period and if symptoms were more severe could have created far more instability against the backdrop of high inflation and tighter monetary policy."
He further elaborates, "With that in mind, financials look well positioned to perform strongly this year. Higher rates should help margins, the economy is performing well which should continue and markets remain volatile. It's shaping up to be a very good environment for the banks. You can neevr write tech off, but this year could be more challenging. Economies are focused on living with COVID-19 rather than running from it and higher rates could make life a little more difficult. We've seen evidence of that recently."
Supply chain disruptions caused by Omicron and IHU, as well as ongoing investor anxiety about the possibility of further variants being discovered may put a damper on market sentiments in the first few months.
In this changing scenario, a number of sectors emerge as those which are expected to outperform, navigating inflation and supply chain constraints better than others.
- Renewable energy
- Cryptocurrencies and central bank-backed digital currencies
- Banking and financial institutions
Renewable energy
Renewable energy manufacturers, especially lithium miners, solar panel manufacturers and hydrogen fuel cell producers are expected to see a boost this year, as governments turn towards greener energy alternatives. With increased spending on low-carbon infrastructure and climate change programs, the size of the alternative energy market is expected to steadily catch up with fossil fuels in the coming months.
Jesse McDougall, head of export finance, North America, at UK Export Finance, believes that there may be “huge volumes of capital focusing on finding viable economic renewable power solutions, globally”.
This increased focus on renewables would spell relief for the winter energy crisis which has steadily been getting out of hand, in the last few months, with Shard Capital’s Bill Blain, the head of alternative assets and a market strategist highlighting that markets do not realise exactly how surging power prices are going to affect global growth and corporate earnings.
Cryptocurrencies and central bank-backed digital currencies
Cryptocurrencies have seen a volatile year in 2021 with record highs and crashes, interlaced with scams and crimes clocking in at a record $14bn in the past year, according to a report by blockchain analytics firm Chainalysis. This was largely due to the unprecedented increase in the number of DeFi platforms in the last few years.
Year 2022, however, is speculated to spell better fortune for cryptocurrencies and central bank-backed digital currencies alike, as a number of central banks such as the Reserve Bank of India, look to launch their own digital currencies.
This would not only curb the rise of illegal currencies, with little to no information or regulation but also give rise to a stronger legal and regulatory framework surrounding digital currencies, which would go a long way in helping curb scams and protect consumer interests.
Speculations about the cryptocurrency sector extending its gains this year remain positive, as the largest risk factor, which was expected to be the US Fed moving to a more hawkish stance has been out in the open and already priced in, according to cryptocurrency market analyst, Yuya Hasegawa, from Bitbank, a Japanese digital asset exchange.
Gareth Randal, managing director of Authentix Management believes that “the gaming and metaverse sector will be most successful. We’ll be seeing a lot more AAA games being developed such as Illuvium, allowing gamers to earn as they play.”
He further highlights that “other projects combining real-life products with crypto will also be doing great in the future, such as SpiderDao combining their VPN service and hardware with DAO voting and whale resistance governance.”
Banking and financial institutions
The banking and financial sector has been one of the hardest hit during the ongoing pandemic, with additional blows from the likes of Evergrande on the verge of collapse and potential policy shifts by the US Fed.
A number of challenges have come up for the sector in recent years, according to this report by the Center for Economic Policy Research (CEPR), such as digital disruptions in the way of increased forms of digital money, as well as increased competition and cyber security issues.
According to Deloitte, 2022 could be a year of recovery for the sector, as long as it can properly harness the digital assets revolution and energy. This is combined with changing employee landscapes as well as client expectations, as the way work is done and the workplace gets redefined.
An increased focus on bridging the gap between cyber security and financial crime, as well as developing more streamlined processes for big techs and fintech is expected to help boost the sector further. Macro revenues are also speculated to increase, as central banks look towards hiking interest rates and stimulus measures are further tapered.
Although 2022 looks promising for the above sectors, some may have a harder time, such as travel and hospitality, which have been doubly hit by extended lockdowns, increased travel restrictions and the potential for further Covid-19 variants being discovered.
Sectors such as hard coal mining may also see a decline, as more companies shift towards greener alternatives and focus on building their ESG profiles.
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