2022 Global Credit Outlook: Views on Growth, the ECB and ESG Investing
1. How could global growth dynamics affect global fixed income markets in 2022?
The global recovery has been somewhat disjointed and asynchronous, and we expect this pattern to continue into 2022. We believe the primary drivers of the asynchronous global recovery will likely remain similar to last year’s: COVID-19, inflation (see chart), supply chain disruptions and China growth fears. However, the removal of stimulus by global central banks could introduce a new dynamic this year. Inflation has surprised to the upside in most places, albeit to varying degrees. As we progress through 2022, we should get more evidence of how persistent inflation is likely to be. This would impact both long-term inflation expectations and central bank reaction functions, in our view. We think the market’s interpretation and subsequent pricing of these factors is likely to lead to volatility across global credit, rates and foreign exchange.
We would view higher volatility across global credit markets as a positive. Credit quality is fundamentally sound and default expectations are quite low. However, we believe that reducing credit exposure could provide investors with dry powder to deploy if and when credit spreads offer more attractive valuations. Presently, we think pockets of opportunity still exist in credit. We believe potential rising stars in the energy and healthcare sectors could offer decent upside, as well as specific global issuers in sectors that are likely to benefit from economic reopening, such as airlines/airports, toll roads, and lodging.