The 5 investment themes for 2022 focus on post-lockdown innovation and the entrepreneurial spirit, investors’ need for inflation protection, the emergence of the circular economy, small and mid-caps, and the metaverse.
“We expect solid growth in 2022, but with higher inflation than in previous years. We anticipate an improvement in supply chain issues around the world. Finally, we expect central banks in developed markets to begin to raise their interest rates, notably in the United Kingdom, Australia and Canada.” says Edmund Shing, Global Chief Investment Officer, BNP Paribas Wealth Management. "Today, we live in a world which has seen profound structural change, accelerated of course by the pandemic and the associated lockdowns. We need to invest in these changes. That’s why, to define our 2022 investment themes, we focus primarily on the opportunities linked to the inflationary context, major innovation and entrepreneurial ingenuity, the circular economy, which we think will become central to the reduction of waste and carbon emissions, and the future version of the internet: the metaverse."
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5 INVESTMENT THEMES FOR 2022
THEME 1 – Riding in a new inflation regime
Fiscal incentives from governments and monetary stimulus from central banks will lead to economic recovery. These measures also lead to much higher inflation than in the last decade and this is likely to continue.
To hedge their portfolios against this inflation risk, we recommend investors to invest in inflation-linked sovereign bonds, flexible or absolute bond funds, equities and equity funds that may benefit from this higher inflation rate, including cyclical and value stocks, and finally commodities such as precious metals and base metals related to the manufacture of electric batteries.
THEME 2 – Identifying winning investments and innovations
The pandemic has accelerated investments and innovation, thanks in part to massive government investments in renewable energy, infrastructure and the health sector. Individual companies are also investing to boost production and productivity through technology, as well as to implement home-working. In addition, the acceleration of new companies in the United States and Europe should boost economic growth in the medium term and in turn promote innovation.
We recommend investors to buy green bonds, growth-related private equity funds and thematic equities, equity funds and ETFs (digitalization, artificial intelligence, blockchain, cybersecurity but also equipment for mining and oil extraction or in the fields of health and telemedicine).
THEME 3 – Repair, Reuse and Recycle
To protect our planet, it is necessary to better use scarce resources and reduce CO2. To achieve this goal, we need to promote a circular economy, as opposed to a linear economy, which causes waste. The circular economy favors reuse and recycling, while targeting the reduction of carbon emissions. The five sub-themes are:
- circular sourcing of raw materials, using recycled materials,
- recycling scarce resources when a product can no longer be used,
- extending the product’s life
- sharing platforms,
- leasing services (borrowing instead of buying).
As part of this theme, we recommend investors to target equity funds and ETFs based on the circular economy, Private Equity funds focused on sustainability, renewable energy funds and finally, green bonds funds to promote sustainable investment.
THEME 4 – Small is (still) beautiful
Today it is interesting to invest in small and mid-cap companies (USD/EUR 5 billion or less) in the United States, Europe and emerging countries. This segment of the stock market demonstrates long-term outperformance around the world as these companies are generally less complex, more innovative and adapt more easily than larger structures. This segment is also experiencing a better exposure to domestic economic growth, which we expected will remain solid in all these regions in 2022. Moreover, in a mature bull market, large companies often look for external growth opportunities, especially through acquisitions of small companies – even at a premium. Finally, these companies tend towards a higher level of valuation, especially in the United States or Asia.
We therefore recommend investing in these companies via actively managed funds and ETFs, via private credit funds and unlisted credit with a higher yield, and also via private equity funds focused on leveraged buyouts and growth.
THEME 5 – Enter in the Metaverse
The Metaverse takes users into a virtual world that connects different digital environments. This is the future version of the internet.
The Metaverse brings together several sub-themes such as blockchain, cybersecurity, cross-media sharing platforms (e.g Google, Meta...), video games and collaborative work software.
We recommend to invest in this theme via:
- thematic funds and ETFs which focus on these sub-themes (digitalisation, artificial intelligence, electronic payment, cybersecurity),
- private equity funds with a technology focus,
- real estate companies and funds invested in 5G telecommunications towers.
BNP Paribas Wealth Management is a leading global private bank and the largest private bank in the Eurozone with €411 billion worth of assets under management as at September 2021. Present in three hubs in Europe, Asia and the United States, it employs over 6,800 professionals who support High-Net-Worth and Ultra-High-Net-Worth individuals in protecting, growing and passing on their assets. The bank aims at building a sustainable future by combining its deep expertise and reach with its clients’ influence and desire for impact. The bank was recently named Best Private Bank in Europe, in North Asia, in US West and in the Middle East.