Top 5 investment themes for 2022

Deutsche Bank believes that there are five major investment themes in the market in 2022, and everyone can construct their own investment strategies according to each direction.

1. An overheated economy

While some commentators are concerned about stagflation in 2022, Deutsche Bank believes that the U.S. economy is far more likely to be at risk of overheating, and the massive stimulus still in the financial system, combined with accommodative policy conditions, will continue to ensure inflation and economic growth remained high.

The result is likely to be a "growth inflation" environment in 2022.

The Fed, in turn, could become more aggressive in 2022 to curb inflation.

If the economy overheats and tightens faster than historically loose financial conditions, the end of the cycle could be a bigger concern, with a recession in 2023 or 2024 increasingly debated.

2. Optimism about COVID-19

There are credible reasons for investors to be optimistic about the evolution of the pandemic in 2022.

Improved medicines are expected to go mainstream, while the availability of several Covid-19 vaccines is expected to increase, meaning more people will eventually be able to get vaccinated.

The biggest game-changer in 2022 could be antiviral drugs, which promise to reduce hospitalizations and deaths.

3. Labour market and inflation

The rapid recovery in the global labor market is also raising inflation concerns.

This is likely to intensify in 2022, as upskilled workers leave their current roles in search of better jobs.

History shows that unemployment tends to decline as economic cycles lengthen.

Given that the current economic cycle has only just begun, and that cycles in recent decades have been longer, this means the labor market is likely to continue to tighten for years to come.

The prospect of an exceptionally tight labor market has driven further wage growth, and stripping out the stagflation period of the late 1970s and early 1980s, there is a fairly good correlation (41%) between unemployment and inflation, although this correlation increases with The passage of time has weakened.

4. Businesses focus on asset efficiency

In 2022, there will be a renewed focus on asset efficiency as two other sources of return on equity -- profit margins and leverage -- come under intense pressure.

There are early signs that asset efficiency is getting the attention of fund managers. Over the past three quarters, asset turnover among S&P 500 companies has grown faster than at any time since the financial crisis. This is good news. If asset turnover were to return to pre-crisis levels, the theoretical return on equity would increase by two-thirds.

Deutsche Bank suggests that companies can be divided into three categories: companies that have achieved asset efficiency, companies that ignore problems, and companies that are inefficient but are solving problems. The latter can provide the most value to investors.

At the same time, the market is likely to punish companies that continue to drag their bloated balance sheets for inaction.

5. Excess inventory

In 2022, supply chain disruptions, combined with market imperfections, could lead to retailers and manufacturers struggling with sufficient inventory. A slower-than-expected release of pent-up demand and a focus on experience over merchandise could exacerbate oversupply.

In 2022, there will be a "bullwhip effect," where the response between retailers and manufacturers is to order less and then more. Shortages are followed by surpluses, then shortages, until an equilibrium is finally established.

Fluctuations in commodity supply will continue to oscillate until a balance is finally established. In other words, the "bullwhip effect" is likely to continue to dominate the supply chain in 2022 and lead to excess inventory.