Lost Worlds
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“I have no idea how the markets will move in the first few months of 2022. But here’s what I do know, inflation is real. Go to your grocery store and take a walk.
That’s the view of Citywire’s AA-rated fund manager, Randall Dishmon (pictured).
Inflation has dominated discussions over the past year, but Dishmon, who manages multiple funds at Invesco, said the supply chain disruption and overall price hike weren’t going away anytime soon.
“The inflation I see in food prices is just incredible, a real eye-opener. Make no mistake, this is not temporary.
At a time of supply bottlenecks and central bank policy easing, fund managers widely agree that it will take some time to get back to normal.
“The big question is, what risk does this pose?” said Ken McAtamney, rated AA by Citywire, who manages several equity funds at William Blair Investment Management.
McAtamney thinks 2022 will be a year of transition, but not an easy one.
“2022 is shaping up to be a year of deceleration towards more normal and healthy rates of economic growth and inflation, paving the way for sustained multi-year expansion. However, the road to get there, as we have already seen, will be marked by periods of high volatility.
McAtamney said consumers don’t seem to expect price pressures and scarcity to persist, as there are no signs of hoarding or delaying purchases in response to price increases.
“The persistence of price inflation surprised us, but our base case remains that as supply chains normalize – and they will – inflation will decline.”
Adrien Pichoud, A-rated director of Citywire, who is also chief economist of the Syz Group, believes that inflationary pressures could continue to be fueled by slight headwinds, postponing the expected slowdown for 2022.
window of opportunity
Pichoud (pictured) said the main problem for 2022 is that central banks face a “very peculiar” situation they haven’t faced in decades.
“This is a country where economic growth is strong and unemployment rates continue to fall, without the need for massive monetary policy support to the economy. On the other hand, inflation is significantly higher to the goal.
According to him, if inflationary pressures do not normalize, central bankers will be forced to move, regardless of the behavior of the rest of the economy.
“They now have an opportunity to do things that they have not been able to do in the past 10 years. They should take this opportunity to have some leeway in the next crisis and to correct certain imbalances triggered by interest rates and liquidity injection programs.
“If central banks wait too long before normalizing – say until 2023 – then we will no longer have the conditions to normalize.” Inflation will come back down and so why raise rates when inflation growth is slowing and inflation is on target? ” he said.
Pre-pandemic assessments
Looking at the old battle between valuations and fundamentals, managers believe the market will be under control, after a strong rally since the pandemic shock, particularly in the United States.
Moreover, with the expectation of impending interest rate hikes, logic dictates that valuations gradually decline.
“All the increase in market performance since mid-2020 has been driven by earnings growth, not multiple expansion. Multiples globally have quietly contracted an average of 10-15% over the past this period,” McAtamney (pictured above) said.
Dishmon believes subsectors such as semiconductors, as well as many industrials, commodities and chemicals, are trading at unsustainable levels. “They are just too far off for the fundamentals to catch up with them. I think their race is coming to an end,” he said.
However, Pichoud believes there is still a long-term structural case for the semiconductor industry as the digitalization of society develops further. “It’s very difficult to see any reduction or even stagnation in chip demand.”
According to him, the high concentration of the industry, with a very limited number of players, is one of the reasons why these holdings remain at the heart of his portfolios. “We maintain that, even recognizing that valuations sometimes get a little stretched.”
Meanwhile, Dishmon, a big fan of certain communications services and technology companies, believes that names such as Meta Platforms, Amazon, Twilio and Crowdstrike, are now “terribly mispriced” as fundamentals look strong and prices are trending higher. are already adjusted.
“In my view, they’re all now at levels where they can do well on the right time horizon, which is not a few months,” Dishmon said. Still, when asked if 2022 will be the year of the Metaverse, Dishmon said it’s too early to tell.
“Tens of billions of dollars have to be spent to even build the infrastructure for a metaverse. Give it a few years, then we’ll see.
