Morningstar's outlook for 2022
Bank earnings, house prices and China risk: Our experts and analysts discuss what they've got their eyes on in 2022.
Mathew Hodge: The outlook for 2022 is definitely less certain. It looks like China's growth is going to slow. We saw really strong growth in steel output and electricity generation in the first half from China, and that has greatly slowed in the second half, and still a few headwinds for China going forward, and they're looking to continue to reform their economy. So, that's been a kind of a stop-start effort. But the more they continue along that path, the more I'll expect they pivot away from that investment-driven growth model that they've had.
Nathan Zaia: We expect bank earnings to be flat to down in 2022 as credit growth continues but is offset by margin pressure. We see the banks lifting pricing of fixed rates already. But we don't think margins can really recover until the RBA begins to lift rates and the banks can reprice their large loan book or their existing loan book. That's probably more likely a 2023-2024 story at this stage. Building credit growth remains sound at around 5% given the low cash rates and people withdrawing those large offset accounts that they have, and there could be upside to that number, but we've already seen APRA try to keep a lid on things, and it's likely that more macro prudential measures would come in if we do see house prices and credit growth really take off.
Grant Kennaway: I expect to see more pressure on companies to actually disclose their green credentials – are they walking the talk in terms of following policies and procedures and the promises they're making about their ESG credentials, how they're acting in the environment, how they are looking after their staff and stakeholders, their suppliers and also their governance factors. I think now we can expect to see more scrutiny of companies, and I think we can expect to see more scrutiny of fund managers as well. If a fund manager is saying I'm running an ESG strategy, I expect to see far more scrutiny from third-party researchers like Morningstar just to make sure they're walking the talk that their money is actually being managed in that manner. And I think that will be the key trend for 2022.
Annika Bradley: I also expect to see a significant level of product innovation to support the government's retirement income covenant, which requires super trustees to formulate and give effect to a retirement income strategy for their members. We've already seen a little bit of product innovation in this space with Magellan launching a product and QSuper launching a product, but I expect in 2022 we'll see a significant increase in innovation.
Graham Hand: There's always a great security of owning your own home in retirement. And one of the problems that we've had with what's happened in 2021 is prices of homes have increased dramatically and taken this opportunity of home ownership away from many people. I think that the regulators have been very slow to act to curb mortgage lending, and I think that's another policy change in 2022 where controls will be added to mortgage lending, and I think prices will rise at a much slower rate in the next couple of years.
Peter Warnes: The U.S. Fed has been, if you like, distracted from doing what they should have done by Delta. Now, Delta has moved to Omicron, but they have decided now like other central banks like the BOE, the Reserve Bank of New Zealand, the Canadian Central Bank, they've moved and started to almost tighten, tapering asset purchases, raising official interest rates, and the Fed is going to have to follow and follow briskly, and I think that they will move as early as March. Their asset purchase program will complete in March after spending at the rate of $1.4 trillion a year. That massive withdrawal of liquidity from the financial system is going to have significant implications, and I do not expect inflation and core inflation in the U.S. to come back below 4% at any time in 2022.
Shani Jayamanne: So, in 2022, I expect that we'll continue to see the trends that we saw in 2021 play out further. So, we'll see retail investors, especially retirees, relying on their portfolios for income. They have no real choice except to continue to trickle money into the equities market. So, we'll see that substitution effect continue, because we're not going to see rates increase anytime soon. But I don't have a crystal ball, so I can't say whether the market goes up or down. But if we do see a downturn, we'll see a lot of investors overexposed to equity markets. So, regardless of whether the downturn is in the next year or in the next three years or five years, investors do need to be mindful of that. But on a more positive note, we've seen some great moves towards accessibility for retail investors. So, we're seeing so many investors entering the market because of technology breaking down the barriers and lowering the cost of investing as well. And there is quite a lot of rigidity to financial services and financial service products. So, I'm excited to see the focus continue to shift towards the end investor in 2022.