[Fin Talk] Market and Financial Trends to Watch Out for in 2022
By Arlyn Tan
2022 presents new opportunities and challenges to households and businesses because of the movements of the interest rates, inflation, and the Forex. All these can affect the purchasing power of our peso, loan rates, and investment choices where there can be winners and losers. I outlined the possible impact to the ordinary Juan based on the economic outlook of two experts
According to Mr. Gilbert Lopez, Head of Research on Philippine Equities of Macquarie Capital Securities Philippines, Inc, the reopening theme is the source of hope for the economy buoyed to lessen the scarring effects of the pandemic. The vaccination at 600,000 daily makes the achievement of herd immunity in 2022 possible. Mobility will enable the acceleration of economic activities and consumption.
1. For the dollar-peso exchange rate, it is forecasted that the PHP has a weakening bias to 51.00 by end of 2021 and 52.5 by end of 2022.
Implications: A weakening of peso to 52.50 will make the recipients of OFW remittances happy because their money can buy more items. On one hand, the parent who is sending his children to school offshore will find the tuition fee more expensive. Importers who will purchase raw materials and goods abroad will have higher costs. Exporters will have more competitive prices against exporters from other countries.
2. Interest rate is currently at 2.0% but it is expected to become 2.5% by end of 2022, The raising of policy rates is dependent on the inflation data. The interest rates in 2018 and 2019 are 4.75% and 4.0% respectively.
Implications : Financial Products like bonds will have higher rates. Bank deposits and loan rates will be relatively higher in 2022 compared to 2021. So don’t be surprised if the home loan repricing rate will be higher upon renewal. In choosing a sector to invest in, the banking sector will be beneficiaries of higher interest rates. The inflation can be disadvantageous to consumer discretionary and manufacturing because the cost and prices are pushed upwards.
3. With the May 2022 presidential election, the base case is an investor friendly administration.
Implications: Investments in the capital markets and in the country will attract money inflow from the foreign investors when regulatory risks are manageable. Foreign inflow can solve unemployment issues and generate tax revenues for the government.
According to Mr James Cheo, Chief Investment Officer, Southeast Asia, HSBC Global Private Banking and Wealth, the world that we are living in 2022 will be characterized by more indebtedness, increased connection and a more divided world.
In 2021, the total debt of the world is at 380% of the Global GDP. Inflation is seen to average at 3.0% in 2022 and 2.2% in 2023. He predicts that interest rates will stay low for a longer period since government will still want to support the economic recovery.
People are more connected through e-commerce, digital finance, online education, remote working and online enterprises, big data and cloud computing. The next big things are the Metaverse and Cybersecurity.
Implications : Investing globally is important to ride with the growth of companies that are into helping people more connected, collaborative, and productive. Investors can choose thematic funds through the UITF, mutual funds, VUL and feeder funds. The selection of funds depends on one’s risk appetite, time horizon, investment and financial goals.
The world is more divided because any crisis has made income inequality more pronounced. Special mention of China was done because of China's Long Vision 2035 to have Common Prosperity. This had led to higher regulation on monopolistic power. It aims to have an equal playing field in education and technology.
Implications: While China is an economic superpower which can attract investments through stocks and funds, expect that there will be more regulatory risks which can add to the volatility of the prices. China stocks can be good investments for people with a greater than 5 years time horizon. US tech stocks can have lesser regulatory risks and can provide more value to the investors.
With the economic divide, innovations in clean energy, technology, education and finance are encouraged to reduce the gaps. Marrying profitability with solutions to address social problems is the cornerstone of environmental, social, and corporate governance (ESG) initiatives of companies aiming for sustainability.
As a strategic wealth consultant, I would highly recommend that you review your financial and investment objectives before the year ends. Rebalancing your portfolio to include insurance (health and life), alternatives, private equity in addition to real estate, bonds, and equities which are beneficiaries of reopening, work from home, digital connectedness and ESG initiatives can add resilience to your financial plan. Despite the challenges brought by the pandemic, there are gems out there which can add value to your portfolio.
Arlyn Tan is a Strategic Wealth Consultant. She helps individuals and organizations on how to maximize the value of their money through risk, health & wealth management. Her mission lies in making sure that clients achieve 3 things. First, they reach their milestones on time with sufficient resources. Second, they protect them from the impact of economic losses secondary to unexpected events. The third and most important is that they enjoy meaningful and balanced lives.
LinkedIn/Twitter: Arlyn Tan