What developments will we see this year in terms of investments? And what characterized stock markets last year? Peter Branner, Chief Investment Officer at APG, expects in this time of rising inflation stocks to continue to do very well, especially those of large companies.
“After the good investment year of 2020, we thought 2021 would be more modest because of the problems in the supply chain caused by the pandemic. Despite concerns about this, increasing concerns about inflation later in the year, 2021 turned out to be a terrific investment year,” Branner said. “This is evidenced by the fact that our pension fund clients achieved between 8 and 12 percent returns with a diversified portfolio and a healthy contribution from our active management. Whereas 2021 was a year where companies had to deal with the effects of Covid and supply issues, 2022 will be more about how the economy will adjust to high inflation and how we avoid overheating.”
Inflation
In the second half of 2021, we saw a gradual increase in the focus on rising inflation. Initially, central banks asserted that this would be temporary. In the fourth quarter, however, the U.S. Fed concluded that inflation could last longer and announced that it would raise interest rates sooner. The European Central Bank - hesitant at first - is now also signaling that support measures will be phased out sooner. “In retrospect, I think the central banks reacted a bit late to rising inflation, but let’s not forget that the situation was fragile,” Branner argues. “Interest rate hikes could have derailed the economy if they had been introduced too soon. Maintaining balance required close attention. Overall, I still think central banks have acted appropriately since the 2008 financial crisis, to keep the economy running and protect us from major upsurges in unemployment.”
Central banks
“The question is what are they going to do this year, especially in terms of preventing the economy from overheating,” says Branner. “Because that’s a risk this year, with the very low unemployment rates and the tight real estate market. Although the economy is cooling down again a bit with the outbreak of the omicron variety and new lockdowns. I am counting on the central banks to implement their new policies gradually this year. Instead of raising interest rates all at once, they will choose to do so in small increments to allow the markets to adjust. That will be the central banks’ balancing act: rolling out new policies in a way that doesn’t cause shock waves in the markets.”
Stock markets
At least the stock markets are showing a positive start to this new year, Branner notes. “When people are worried about the economy, for example because of inflation, they often choose to sell their stocks. That’s not wise. In the case of inflation, equities are often a good medium- to long-term investment. And I expect high inflation to continue for some time and equities therefore continue to do well. In times of inflation, there are arguments against traditional growth stocks, but some of the larger companies like Tesla and Microsoft may be doing relatively well because they seem to have been able to address supply chain issues. So, the adage ‘the winner takes all’ will also apply to this year.”
Branner also expects a lot from venture capital for 2022. “I have often described this period with more focus on responsible investments as our generation’s Industrial Revolution. That means you can make a lot of money as an investor in these transformational times, but also easily miss a technological disruption. Given this phenomenon, it could be a good year for large companies, but certainly for selective startups. In the last quarter, as an investor, we looked at how we could raise money for venture capital to support startups, and I foresee us continuing to do so this year and into the future. In 2022, we will also be focusing our international attention on Southeast Asia and monitor more investments in Australia, Southeast Asia and India. India will certainly be one of the places where economic growth can be expected because of demographic developments there.”
“At APG, we also want to be at the forefront of biodiversity investments. This is broadly linked to our continuing strong belief in sustainability. And green energy is a theme that is constantly in the spotlight, of course. This reflects the views of our pension fund clients, who continue to develop their responsible investment policies.”