On 15th December 2021, local Chinese newspaper Lianhe Zaobao (LHZB) reported that the word “盼” (translated to “hope” in English) was voted by their readers as the Chinese word of 2021. We can understand why this word was chosen. During the pandemic which started in the late 2019, we hoped for a vaccine to come quickly and lockdowns to be over sooner. We hoped that we can dine in with more people and we can start traveling again. Some hoped that their industry will do better and that they can get a job again. The pandemic has greatly disrupted our lives and it is no surprise that we hoped for a better 2022.
According to Collins dictionary, “hope” as an uncountable noun is a feeling of desire and expectation that things will go well in the future. But as a verb, if you hope that something is true, or if you hope for something, you want it to be true or to happen, and you usually believe that it is possible or likely. Most times, when we use “hope” (its noun), we really mean it as a wish. We don’t have a lot of confidence that it will happen. How then should we hope in 2022?
When the S&P 500 came down about 30% in March 2020, market watchers sounded the alarm bells to ask investors to get out of equities. They said that the bubble has burst, and the bull run is finally over. But if we have heeded their calls, sold off our positions or stayed at the sidelines, we would have missed the recovery to get about 16% returns from the S&P 500 in 2020 and another 27% in 2021. Even the MSCI All Country World Index (which includes other developed and emerging markets) gave about 18% last year. This is a lot of returns to miss and no wonder some of the people I met shared that they regretted being out of the markets and wished they had participated. As we enter 2022, analysts are warning us about the risks of the markets again. In my view, I will say that three of the biggest risks in 2022 are inflation, the Omicron variant, and the crash of China’s real estate.
While Omicron is more infectious than the Delta variant, it seems to be less deadly. But the World Health Organisation has warned us not to jump to that conclusion yet. If Omicron turns out to be bad, or another new variant that may come out becomes deadly, it could trigger more lockdowns, cripple the supply chain, and put the economy into a tailspin and cause markets to react negatively.
Inflation is another cause of concern. Over the past 2 years, governments around the world have been pumping money into the system to support the economy. And with interest rates so low, consumers and businesses borrowed to spend and caused inflation to creep up. The US Federal Reserve (Fed) has signalled that they will increase interest rate to curb spending and bring down inflation. According to Bloomberg Economics, if the Fed hikes interest rates three times this year and signals that they may continue to do so even after that, the US may be heading into a recession at the start of 2023. This will not be good for the equities markets. Furthermore, with geopolitical tensions happening between Russia and Ukraine, it may also cause gas supply disruptions and send prices higher. The global economy in 2022 could face stagflation – rising price in a time of low economic growth and this will also negatively impact markets.
China’s property development industry probably accounts for about a quarter to a third of its economy. According to Reuters, as the Chinese government continues to cool down this sector, it is expected to keep slowing into the first half of 2022. This may cause a slowdown in the commodities markets.
I am sure I sounded intelligent with the above outlook. But if we read carefully, I have used words such as “if”, “may”, “could” and that means I can be wrong because these are just my guesses based on the reports I have read everywhere. Therefore, please treat whatever I have shared or anyone who will share with us these kind of views with a pinch of salt. There is more than enough evidence to show that most fund managers who made investment decisions based on such predictions failed to do better than the index most of the time. And for those who managed to do better for a few years, they don’t do it consistently in the long run. And since evidence shows that by investing into and staying invested in low-cost, broadly diversified index funds/ETFs will yield enough returns for your goals in the long-term, why take the risk based on other people’s guesses and pay them for it? Am I saying then that these economic and market outlooks are useless?
Observation, Conclusion and Response
Economic and market outlooks are important observations. But they are not useful for making conclusions on how markets will respond. In 2021, it was expected that inflation will start creeping up (a correct observation). The recommendation then was to invest in precious metals as a hedge against inflation (seemingly a correct conclusion). How did markets respond? Palladium was down 22.4%, silver was down 11.5%, platinum was down 10.5% and gold was down 3.4% in 2021. Therefore, a better use of economic and market outlooks is to help us make short-term life and financial planning decisions. For example, if we have not repriced our mortgage, this may be a good time to do so before interest rates start to go up. We may want to increase our emergency fund and spend more prudently just in case the forecast is right and the economy slows down further, and we lose our job. We may want to review our insurance program to see how our family and we can still be fully covered while at the same time lower our premiums outlay. And in the meantime, since we are unsure how markets will behave this year, don’t stay at the sidelines, continue to invest and if it makes us feel better, do it in tranches over the months. And if the markets crash, we will be buying in slowly when prices are down. If the markets are fine, we will not miss the returns.
How will 2022 be for you? Don’t just wish that it will end well, rather “hope” (using its verb). That means being intentional to have an action plan based on concrete evidence and steps, not just in your personal wealth, but also in all areas of your life, such as having better health and family relationships. And because even when you make the correct observations and conclusions, you may still not respond correctly due to fears and a lack of discipline. You may want a community to hold you accountable for your decisions. They can be your spouse, a long-time friend, or a trusted wealth adviser. If you do these things, you can have more confidence that your hopes will likely materialise. Have a blessed 2022!
The writer, Christopher Tan, is Chief Executive Officer of Providend, Singapore’s first fee-only wealth advisory firm and author of the book “Money Wisdom: Simple Truths for Financial Wellness“.
The edited version of this article has been published in The Business Times on 17th January 2022.
For more related resources, check out:
1. Sound Wealth Planning Does More Than Help You Reach Your Goals
2. Principles for Successful Investing
3. The Outlook for 2022: Market Review December 2021
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