Investment Videos

(00:00):  Hi, I'm Rob Waldner, I'm Chief Strategist for the Fixed Income Team at Invesco. And I'm here to talk about a base case for our outlook for 2022.

(00:09):  In Invesco's outlook for 2022, our base case is that next year will be a year of transition back to a more typical economic environment, following the disruption caused by COVID over the last two years. We expect growth to slow from the elevated levels of growth that we saw in 2021 that were due to the reopening after the pandemic shutdown and the aggressive stimulus that supported the economy. It's possible that we'll see renewed outbreaks of COVID, but we think the worst of the pandemic is well and truly behind us. Rising vaccination rates globally and improvements in therapies significantly reduce the possibility that renewed outbreaks will impact global economic growth significantly.

(00:52):  One key aspect of the outlook for the economy next year is the continued support from the extraordinary monetary and fiscal policies that were implemented during the pandemic. Accumulated household savings and elevated money supply will support the economy despite the fact that monetary fiscal policy makers will be reducing stimulus to the economy this year.

(01:14):  Another feature of the pandemic recovery that continues to impact us is that consumers re-oriented spending towards goods and away from services. Think instead of going to restaurants they bought Peloton's. This has created supply chain issues that we're seeing currently, and that are putting significant upward pressure on prices and inflation in general. We expect inflation to remain elevated in the near term for these reasons, but will decline for the balance of the year as the supply chain issues are worked through. In response to continued recovery in elevated inflation, we expect interest rates to trend higher next year when we expect the Fed to hike rates at least once in the second half of next year.

(01:56): For more on our base case and for exploration of some alternative scenarios for the global economy in the next year, please see our 2022 outlook.

(00:05): Hi, I'm Brian Levitt, Global Market Strategist with Invesco. As part of our 2022 outlook, we envisioned an upside scenario in which growth is strong and inflationary pressures prove temporary as they moderate as the year progresses.

(00:20): Now, an expectation of stronger growth is reasonable as we enter the year with households in strong positions, business investment robust, and the potential for growth in the emerging markets to be strong, driven by vaccine rates in the developing world and strong export growth to match developed world demand.

(00:39): In this scenario, we do not envision the type of inflationary pressures that bring forward monetary policy tightening and end cycles. Instead, we would expect consumption to shift away from goods to services, providing time for businesses to rebuild inventory, driven in part by emerging market exports. We would expect more workers to return to the workforce and business investment to result in productivity gains.

(01:04):  The upside would be strong growth and moderating inflation, a backdrop that would be supportive of corporate earnings globally, but not so strong as to bring forward policy tightening. We believe that such an environment would likely favor risk assets, including stocks over bonds and credit over treasuries.

(01:22): In this environment, we would expect interest rates to trend higher, driven by higher real yields.

(01:27): As equity investors, we would favor cyclical stocks, including sectors such as financials, energy, materials, and industrials, as well as favoring smaller capitalization businesses and non-dollar assets, including emerging market equities.  

(01:41): As we indicate in the report, this scenario is not the base case, but it's still a reasonable probability given the sound fundamentals of the economy. Investors may want to consider orienting a component of their portfolios around this upside case. Thank you.

(00:05): Hello, I'm John Greenwood, Chief Economist at Invesco. As part of our outlook for 2022, we sketched out two tail risk scenarios. In the first, inflation gradually subsides and growth remains very buoyant. That's the optimistic scenario, but I'm going to talk to you about the other scenario, that is where inflation remains elevated and growth is gradually eroded.

(00:31): Now in this adverse scenario, the rapid money growth that the US has experienced since the onset of COVID, just over 18 months ago, translates not just into supply-side problems such as we are seeing in the economy at the moment, but gradually morphs into demand-side problems, such as rising rents, rising wages, and ultimately potentially, a wage price spiral.

(0:57): The Fed and other monetary authorities would feel obliged to take action if that sort of rate of inflation looked like it was persisting. They would also become very concerned if inflation expectations, which up until October had remained broadly in the 2.5 to 2.6% area, started to become unanchored and moved up to 4, 5, 6%.

(1:22): Such events would likely lead to a Fed policy response that could include acceleration of their tapering moves — that is slowing down the rate at which they purchase securities — and ceasing that program early, and in addition, bringing forward their currently planned rate hike program, which isn't due to start until the end of 2022 or early 2023.

(1:45): In other words, instead of simply taking their foot off the accelerator, the monetary authorities, the Fed in particular, would start to tap on the brake and they might have to tap repeatedly on the brake.

(1:59): How should investors position their portfolios in the event of such a tail risk coming to pass? Traditionally, the assets that perform best in an inflationary environment are commodities, especially precious metals such as gold and silver, and then real estate and equities.

(2:16): Certain inflation protected securities, such as TIPS or index linked bonds, have also served as a safe harbor for investors in periods of rising inflation.

(2:27): As we indicate in our report, among stocks, favorite equities would include low volatility stocks, large caps, quality or low PE stocks, and defensive stocks.

(2:41): Among the asset classes to be avoided are bonds, government bonds or investment grade bonds. But in addition, high-yield bonds should definitely be avoided because they would be subject to very significant downside risk.

(2:55): On currencies, safe haven currencies are generally reckoned to be currencies such as the Japanese yen, the Canadian dollar and the Swiss franc, while traditionally the US dollar and emerging market currencies are thought to generally perform poorly, in this kind of environment.

(3:11): To conclude, in a tail risk environment of elevated and persistent inflation, investors may wish to take action to protect at least part of their portfolio by allocating assets to those asset classes which provide some kind of downside protection.

(00:00): Hi, my name is Alessio de Longis, Head of Global Tactical Asset Allocation for Invesco Investment Solutions. Today, I'm here to discuss the asset allocation views for our investment outlook for the year 2022. In our base case scenario, we expect global growth to normalize remaining above its long-term trend but decelerating to a more sustainable rate over the next two years. We expect inflation to remain elevated, but to peak around mid 2022 and decline back to our target rates by the end of 2023. The cycle transitions can provide some speed bumps along the road.

(00:38): As monetary policy tightens and fiscal stimulus is gradually removed and replaced by a pickup in private demand. We expect volatility to increase on the margin with more sideways market performance as markets digest this transition to slower growth and less accommodating policy. Now, from an asset allocation standpoint, we recommend a broadly neutral risk stance relative to benchmark, expecting convergence in returns across asset classes, especially relative to the past two years in which risky assets meaningfully outperformed safer asset classes. But we still expect equities to outperform bonds. Within equities, though, we favor more defensive parts of the market such as quality and low volatility over value. And large caps over small and mid-caps.

(01:29): Our sector allocations reflect these same style and factor exposures, therefore we favor defensive sectors with quality characteristics, such as technology, communication services, healthcare and consumer staples at the expense of financials, industrials, and materials. Now, in terms of regional exposures, we favor US equities over developed market equities outside of the US, as US stocks provide lower exposure to slowing global growth cycle. Finally, our thesis for cyclical divergence in favor of emerging markets argues for an overweight to EM equities, which should also be supported by a range bound US dollar. Now, moving to fixed income. We believe it's appropriate to increase portfolio duration despite central banks tightening. Why is that? We expect rate hikes to push bond yields higher in short and intermediate maturities, but we expect long-term bond yields to remain anchored given slow growth, peaking inflation, and abundant access savings in the system. In other words, we expect the yield curve to flatten further.

(02:39): We expect credit spreads to remain anchored and credit markets to continue offering a stable source of income. However, compared to the last two years, a more balanced allocation between investment grade quality and riskier credit assets, such as high yield, is appropriate. In conclusion, we expect 2022 to be a year of transition for the market with somewhat higher volatility and narrowed performance dispersion between asset classes. We believe equities are still likely to outperform fixed income, but a more diversified and balanced approach to risk is appropriate. For more detailed information about our asset allocation views, please download our complete 2022 investment outlook. Thank you.