1. The metaverse will remain a key investment theme

Although the metaverse is in its early stages of development, it has become a hot topic in the past year, with major technology leaders such as Meta, Microsoft, Apple, Amazon, Baidu, Alibaba and Tencent already announcing their investments in the field. VR (virtual reality) and AR (augmented reality) avatar devices are the main entrances to the metaverse. As technology leaders become more involved on the platform, there will be an increase in demand for related hardware upgrades, driving up the sales and advancement of VR and AR equipment. Undoubtedly, the metaverse will become one of the most important investment themes in 2022.

2. High food prices may continue to drive inflation

U.S. Federal Reserve Chairman, Jerome Powell, admitted at a congressional hearing earlier in December that inflation is not a transient phenomenon. The risk of inflation continues to increase, and he is considering ending bond purchases several months in advance. Factors that are driving inflation include raw material prices remaining high and the U.S. labor market facing manpower shortages, driving wage growth. To suppress inflation, the number of interest rate hikes next year may exceed market expectations. On the other hand, as some countries continue to store up food, prices will remain high, which will without a doubt continue to fuel the global inflation problem.

3. More volatility in the U.S.

Under the quantitative easing policy, huge funds emerged in the market and continued to flood into U.S. stocks. The three major U.S. stock indexes have performed fairly well this year. As of 27 December, the S&P 500 Index rose by nearly 28%; the NASDAQ was up by more than 23%; while the Dow surged by nearly 191%¹. However, as inflation continues to be high and affect the confidence of investors and businesses, the Federal Reserve will not implement a looser monetary policy as in the past, and the market will likely underestimate the pace of the Reserve’s interest rate hike next year. In addition, corporate profits may also regress due to the high base effect. The current valuations of the three major U.S. stock indexes are not low, therefore if the performance is not satisfactory, it may usher in a round of valuation corrections. Coupled with the rebound of the pandemic, U.S. stocks may become more volatile and investors should not be too optimistic about the performance of the asset class next year.

4. The pandemic continues to be a key risk globally

Omicron risk remains very high. Although symptoms are less severe, the number of confirmed cases in Europe and the U.S. have increased rapidly as Omicron has proven to be more contagious than previous variants. Many countries have once again implemented strict pandemic prevention measures and U.S. airlines already cancelled more than 1,160 flights on December 27. In China, although the country has always been very strict in terms of overall pandemic prevention, there has recently been a new wave of a pandemic rebound in many domestic cities such as Xi’an, a major global semiconductor supplier, which went into lockdown starting last Wednesday. Many investors are concerned that the economic growth in China will further decelerate. In addition, the vaccination rates in emerging countries remain far lower than that in more developed countries due to the shortage of raw materials, blocked supply chains, and the signs that the latter are hoarding vaccines. As the new variant spreads, it will be more difficult to control the pandemic. It is expected that countries around the world will continue to fight against the epidemic in the coming year.

5. Geopolitics will become more complicated

Geopolitics has always been one of the factors affecting the global financial markets. The border military conflict between Russia and Ukraine grew tenser as there has been news that the former will violently attack the latter in the coming year to overthrow the pro-Western regime in Ukraine, which drove the two sides to the verge of war. In addition, Sino-U.S. relations have also become more complicated. The delisting of China concepts stocks, the blacklisting of many Chinese enterprises, and the refusal to attend the Winter Olympics, have all resulted in a deadlock between China and the U.S., becoming one of the main uncertainties in global markets.

Source:

1. Bloomberg, as at December 2021

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