The post-COVID era has been a turbulent time for investors, with various push and pull factors impacting asset classes across the board. Investors remain more confused than ever about what to do with their money. Here’s a quick and simple rational overview of how four key asset classes will perform by the end of 2022.
Dovish stances by central banks around the world triggered a flood of liquidity in 2020 and led to a massive rise in equity prices through 2021. This dovish stance now being phased out to counter the bane of inflation, borrowing businesses will become more expensive and consumption will fall. That said, economic activity remains quite dynamic despite inflationary trends. Equities will remain volatile and limited in 2022, with a downward bias. Expect key indices to end the year at similar or slightly lower levels than current levels, unless something drastically changes. Use 2022 to systematically accumulate stocks without the expectation of high returns.
Fixed income has had a torrid time over the past couple of years, with most debt funds struggling to beat fixed deposit yields. Now, with the RBI on the warpath for rate hikes, we will see more volatility on the long end of the yield curve. GILT funds still remain risky despite much of the future rate hikes already priced into current yields. The best bet looks like mid-term debt funds from a risk-reward perspective. Money less than a year old can be invested in variable rate funds. Credit risks can be taken in a measured way, with 10 to 20% of your portfolio.
Gold prices closed at $1,837 last month, down 3% from April closing prices as the Fed’s monetary tightening stance gained momentum. Domestic gold prices have done well in 2022 against equities – rising around 6% against the NIFTY, which has fallen around 5% over the same period. This is the result of the depreciation of the INR. As the geopolitical situation remains uncertain, the yellow metal could see a further rise in 2022, although marginal. It would be wise to allocate part of your portfolio to it to cover the risks.
The crypto is showing all the telltale signs of a bubble and appears to have very few institutional takers now as the mood turns off risk. The number of coins in circulation has gone from around 1,200 last year to around 3,000 this year, but the total market capitalization has halved! Bitcoin, the flagship crypto, is trading at levels more than 50% lower than Nov 21. These are impending signs of doom. Crypto exchanges seem to recognize the fact, with companies like Coinbase and Gemini announcing job cuts and rollback offers. SEBI has been waving the red flag when it comes to crypto investments and celebrity endorsements from crypto exchanges. It doesn’t look like the rot will be stemmed anytime soon, so avoid crypto altogether.