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Around the end of the 1960s, there was a significant turning point in the US economy; the share of services in the country’s gross domestic product exceeded the share of goods. In other words, the US moved from being a manufacturing economy to being a services-based one. In the early 1990s, the growing use of computers and the internet accelerated that change.
The pandemic changed consumption patterns boosting the demand for goods just when production became more difficult due to supply chain and labour issues. This temporary shift boosted inflation and government spending creating a temporary glitch that is pushing central banks across the world into action.
The oil market faces cross-currents this year but the bullish tone related to the commodity is likely to continue. Even as the Chinese economy is expected to decelerate this year, Brent crude prices are likely to remain well-supported.
After the rise of East Asia over the past 50 years, Africa is on cue to be the next growth engine for the world. Sub-Saharan Africa, in particular, offers several opportunities, and we do a deep dive on a few that deserve special attention: Angola, Ghana, Ivory Coast and Rwanda.
Egypt is one of the leading economies in Africa, and its strong growth, positive real rates and stable government have increasingly attracted the focus of global investors.
Women now control 32% of global wealth and that share is growing. In the Middle East, the growth is even faster with female-owned wealth expected to grow by 9% a year. This will have many different implications for global and regional investors.
In 2021, MENA equities as a class delivered a strong performance compared to global indices, and that is likely to continue this year as the countries in the region have changed rules creating liquidity and increasing the attractiveness of local stocks for international investors.
Successful vaccine rollouts, a faster reopening, increasing oil output and higher prices will continue to contribute to MENA’s economic growth and fiscal rebalancing, which bodes well for regional fixed income markets as they continue to expand and develop.
With Asia set to reopen and the US dollar potentially reaching its apex along with the tightening cycle for many western emerging market central banks, the local EM currency bonds could become a very attractive proposition late this year.
Global allocators should probably always expect EM equities to trade at a large discount to developed country equities. They were trading at a larger than usual discount towards the end of 2021, but that discount may remain deeper as central banks in emerging markets and structural issues are resolved this year.
The Nigerian naira and the Zambian kwacha are likely to attract global investor attention this year, but their paths may differ.
A hawkish pivot of the Fed in November has supported the US dollar’s strengthening trend, and that should continue to underpin currency trading in the first few months of the year.
Developed market central banks have started to reduce some of the extraordinary monetary easing implemented in the wake of the pandemic. This, however, is unlikely to dent still healthy global growth this year.
After a year of stellar performance, the drivers of performance may differ this year. Despite last year’s gains, a ‘melt-up’ is still possible as ‘fear of missing out’ takes hold. Earnings growth of close to 10% this year could also continue to support US markets, which are likely to remain in the lead.
Over the past 20 years, private market strategies have become one of the foundations of portfolios of institutional investors such as sovereign wealth funds and pension funds. Individual investors to understand them better and use them.
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