Jim O’Neill, Dan Niles, Guy Spier and 7 other market strategists share their best advice for 2022

Published Sun, Dec 12 20216:45 PM ESTUpdated Sun, Jan 9 202210:49 PM EST

When it comes to investing in a very uncertain 2022, there are as many strategies as there are strategists. So CNBC talked to some of the best in the world to get their thoughts as the new year approaches. We asked 10 globally renowned economists and market strategists: What is your top investment strategy, approach or guideline for riding out 2022, and why? Inflation, economic stimulus, and hopes for a recovery from the coronavirus pandemic factored heavily into their thoughts, which sometimes were similar but just as often diverged widely. And it's clear that a lot of other dynamic areas are on their minds right now: pricey tech stocks, broken supply chains, emerging markets, climate change, labor shortages, China, cryptocurrencies and more. As economist and former Goldman Sachs executive Jim O'Neill told us, "I cannot remember a time in the past near-40 years where I have seen so many massive global and local situations where the outcomes could go in different directions." CNBC polled the strategists in this report from Nov. 17 to Dec. 1. They responded via email, and some of the answers which follow have been edited for length or clarity. Aswath Damodaran Professor of finance, NYU Stern School I think we are going to see a continuation of the battle between the good — economic growth — and the bad — inflation — continue to play out in 2022. In 2021, economic growth managed to win the battle, fears of inflation notwithstanding. I think 2022 is going to be the inflation year, as central banks wake up from reality (and investors from their delusions) that banks set interest rates. I believe that rates will rise globally, and that the pace of the rise will put stock prices in peril. Rajiv Jain Chairman, CIO & portfolio manager, GQG Partners Our overarching thesis is that we are potentially seeing the rules shift yet again, driven by changing inflation expectations. We are not believers in hyper-inflation, but it is important to make sure one's portfolio is still prepared for sticky inflation rather than just simply assuming it will disappear. Below are some of our rules of thumb for navigating 2022: Be more discerning with valuation and profitability: In recent years, all one had to do was invest in the fastest-growing companies, regardless of valuation or profitability. However, in recent months, the markets have become increasingly focused on profit growth (rather than just revenue growth), resulting in sharp drawdowns for many Covid winners, SPACs, retail favorites, etc. While we still like large-cap tech, in our view valuations for most small- and mid-cap tech still don't seem attractive, even after the most recent correction. Most young tech companies will not become the next Amazon , Microsoft , or PayPal , and valuations still assume sustained high growth and profitability, despite increasing competition and potentially rising rates. True pricing power matters now more than ever: While every company may believe it has untapped pricing power, most do not, as has become increasingly evident over the past few months with rising input costs. For example, consumer staples used to have tremendous pricing power but are struggling to push through higher costs to customers due to increased competition from smaller direct-to-consumer brands. Similarly, we are skeptical of most tech companies being able to raise prices, given intense competition from VC-fueled startups. We believe the markets will start paying a premium for companies with true pricing power. Focus on sectors that have experienced significant under-investment : Historically, sectors with minimal capital inflows generally outperform sectors with substantial capital inflows. For example, in the late 1990s, capital flooded tech and ignored commodities, setting the stage for tech underperformance and commodity outperformance in the early 2000s. Similarly, in the early 2010s, capital flooded commodities, resulting in over-supply and mediocre subsequent performance. Today, capital has once again flooded tech and abandoned many cyclical sectors. For example, it is much easier to get funding today as an electric vehicle company rather than a commodity producer that owns the raw materials required to build those very electric vehicles (such as copper, nickel, cobalt, steel, etc.). Look outside of what has been hot over the last decade for international investment opportunities : We believe regulatory pressure on Chinese tech and property could last longer than people anticipate. In contrast, we are seeing accelerating growth and attractive valuations in places like Europe, India and Russia. Mark Mobius Founding partner, Mobius Capital Partners Our investment strategy for 2022 is to focus on ESG+C (Environmental, Social, Governance and Culture) in companies with high technological competence, regardless of industry. The increasing pace of digitization means that in order to survive, all companies will need to upgrade their use of technology to improve efficiency and profitability while emphasizing ESG+C. It it important to note that we have found ESG+C to be critical to reducing risk and thus is a major part of our investment process. We have found that all sectors and all regions are very aware of ESG requirements, and it is difficult to find a company that is not at least aware of ESG and, more importantly, taking actions to meet requirements. Obviously the extractive industries are under pressure as a result of a number of investors avoiding the sector. But even in that sector, there's considerable focus on minimizing environmental impact. Dan Niles Founder and portfolio manager, Satori Fund As we think about 2022, our portfolio is built around two themes: Inflation matters The removal of stimulus matters As a result, we believe the S & P will be down in 2022. In 2020, the year the pandemic started, the S & P 500 was up 16% on a price basis, and so far it's up another 25% in 2021, despite the pandemic continuing. The annual historical price return for the S & P is 6% since inception, so either the pandemic is three times better for the world than a normal environment, or something else is driving returns. After $3.2 trillion in stimulus over the last 11 ½ years following the Global Financial Crisis, the U.S. Federal Reserve increased the daily amount approximately 10-fold and added $4.5 trillion in stimulus over the past 1 ½ years since the pandemic. As a result, valuations are at record highs, with total U.S. market capitalization currently at 1.9 times U.S. GDP. That compares with a peak during the tech bubble of 1.4 times, and a 50-year average of 0.8 times. We think persistently high inflation — currently at 30-year highs — and a more aggressive Fed than expected in 2022 will drive valuations lower, along with stock prices. For those who still want technology exposure, we believe Amazon, Facebook and Google provide growth at a reasonable price, given recently lowered expectations and negative regulatory headlines that drove down valuations. Jim O'Neill Senior advisor to Chatham House, vice chair of Northern Powerhouse Partnership, former chairman of Goldman Sachs Asset Management As I look at the investment landscape, I cannot remember a time in the past near-40 years where I have seen so many massive global and local situations where the outcomes could go in different directions. That pertains to everything from Covid-19, antibiotic resistance, climate change, equality and fairness of growth, and — especially relevant for 2022 — whether inflation is transitory or more permanent. Especially with valuations so high and policy having been so friendly, all that uncertainty calls for an approach to markets should be especially open-minded. I am severely tempted to suggest blind faith in the so-called "5-day rule," which says if the S & P 500 rallies over the first combined five trading days of the year, it will be bull market year. And if that's confirmed by a rally for the whole month of January, a bull market year is statistically quite likely. If the S & P falls over the first five days, it will be quite a warning that the markets could be in for a turbulent year. In view of all the issues, this seems not a bad guideline to watch. David Roche President & global strategist, Independent Strategy Preserve assets by not losing money — 2022 is the year of reckoning, when markets have to come to terms with the fact that most of the "transitory" issues affecting the world are structural. They will not fade. Valuations say they will. That is wrong. Here's what I mean by a year of reckoning, and "transitory" not being transitory at all: Supply chain disruptions from structural imbalances in the economy that preceded Covid but are made worse by it. Labor supply and demand mismatches (fewer people joining labor markets, and skills being out of kilter with the jobs on offer). Demography plays a role here. A shortage of high-end chips, which is the real technology supply side disruption — the not low-end chips for cars. De-globalization, including the on- or near-shoring of previously global supply chains, which "buys" security of supply in exchange for higher output costs and inflation. A continuation of big government, big deficits, big sovereign debts that have to be financed by central banks printing money and defacing fiat currencies. The realization of a coming, quasi-permanent cold war between China and world democracies, resulting in China turning inward toward a lower-growth, lower-productivity economic, social and political model. That will make China more, not less aggressive, both politically and militarily. The West, led by the United States, may surprise by designing an effective policy to contain China. But of course that comes at an economic cost to all concerned. Conflict with Taiwan may provide the Chinese leadership with a populist rallying cry to distract from economic under-achievement. Nothing that changes the fatal trajectory of global warming will be done by policymakers. Competitive renewable energy may delay Armageddon but not prevent it. The pandemic is now a "permademic." It will not go away. Around 30%-45% of the world population remains vulnerable either because they are not fully vaccinated, their vaccines are getting old, or the vaccines they got were not good to begin with. Covid will breed new variants, particularly in emerging markets, which will then spread them to developed markets. (Viruses don't need passports.) The permademic will continue to disrupt economies and markets. Globally and economically this all adds up to a higher-inflation, low-productivity and low-growth world, subject to both geopolitical and climate change shocks on an increasing scale. Moderately intelligent strategists, even sensible, cautious ones, assume that markets can pause, then "correct" 20%, and then claw back their losses — as for instance how in stock markets, profits catch up with market prices. But I believe that is a new form of the "transitory" delusion. Bond market yields are likely to rise 100-150 basis points, while central banks and politicians fight to keep them down at the short end. There is really no growth model left for emerging markets. Global trade will no longer drive global growth. China is no longer attractive to asset managers — the political risks are too big and unpredictable. Russia is a thugocracy. Latin America is busy designing another lost decade for itself. Places like Turkey are ruled by mad men. Even among developed economies, we have once reasonable places that are now ruled by clowns — the UK. Rich countries' stock markets are overvalued by 30-40%. They will go down and stay down in the year of the great reckoning. If you have to own them, then the EU is better than most. Cryptocurrencies like ethereum will continue to replace the fiat currencies of central banks. Central banks' digital currencies are simply fiat currencies dressed up in drag with snooping capabilities wired in. Metals that are to combat climate change will continue to do well: copper, cobalt and lithium. So will agricultural commodities and land. Next year will see the U.S. dollar drop sharply when the economic costs of Bidenomics become clear to investors. That will probably happen in the second quarter of 2022. A major long bet is and will remain the Norwegian krone. Cash, if you can find a safe form of it, will probably outperform most assets in 2022. Gary Schlossberg Global strategist, Wells Fargo Investment Institute We continue to lean toward higher-quality, large-cap stocks, as slower — but still respectable — economic and earnings growth cushions them from moderate interest-rate increases that weigh on longer-dated bonds. Diversification — including into inflation hedges — nonetheless is critical, as the global economy transitions to a post-pandemic cycle featuring more moderate, sustainable economic growth. Also expect inflation that's more elevated than it was in the decade before the pandemic, and generally heightened volatility in the investment environment. Guy Spier CEO and founder, Aquamarine Capital Ignore inflation: Questions of tapering, supply shocks and inflation are a distraction. I plan to remain fully committed to stocks. They are the best inflation hedge — the best way to preserve and grow our wealth. Beware bubbles: They abound. It's treacherous out there. Meme stocks, some cryptocurrencies and other areas are in bubble territory. Tread very carefully. Steer clear of value traps. By the same token, we need to steer clear of the many value traps that abound. Many companies are cheap for the good reason that they are no longer competitive. Someone out there is eating their lunch. Good businesses may look overvalued at first blush. Some of the best businesses have enormous runways (or TAM – total addressable market), can earn high returns on invested capital, and are reinvesting all the money they make. So the best businesses can simply hide their high profits by investing in future growth. Even though their business is burgeoning, they appear to be unprofitable. Distinguishing between the good ones and the not-so-good ones. That is the work of intelligent value investors today. Tread very carefully. Do your homework. Hugh Young Chairman, Aberdeen Standard Investments Asia As ever, we're watching a combination of themes: interest rates, inflation, growth, supply chain logistics, technology — not to mention Covid and ever-confusing politics. The way to ride through it for the equity investor is thorough due diligence, making sure finances, management and ethics are solid at the very least. For the bond investor, it's tough for developed-market sovereign issues, given interest rates should rise. Helen Zhu Managing director and CIO, Nan Fung Trinity Looking specifically at China: The important opportunity for China markets is a lower-risk premium as systemic concerns ease. Areas most pressured during 2021's regulatory tightening may see a relief rally in 2022, including longer-term survivors and market share winners in the property and internet industries. But one must be selective, because some companies will be permanently challenged. Watch for reversions in 2022 as Covid effects fade. For example, reopening stocks may see improvement and price support as China gradually embarks on reopening to the rest of the world, while other areas that benefited from unusual supply disruptions this year — such as commodities — may not fare as well. — CNBC's Naman Tandon and Celestine Francis Xavier contributed to this report.

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