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Handelsbanken’s wealth managers have shared their interpretation of global economic trends as they set out their January Strategy Review for their investments.
Asset managers from the bank believe that as the global economy emerges from the worst of the coronavirus pandemic, the peak of government and central bank support has now passed. While this shift is expected to cause some volatility in financial markers, consumer demand remains high among those with the power to keep spending and offers potential to fuel further growth.
Business confidence is also high globally, with capital expenditure rising, and this will also spur further growth.
Production is playing catch-up to meet the increased demand for goods and services, however, the effect of this on inflation will being to ease off in the coming year, the bank’s economists believe.
While many investors were caught off guard in 2021 by rising inflation, Handelsbanken maintains the view that pricing pressures will ease off as supply chains normalise and wage inflation in Covid-19 sensitive areas begins to fade.
The bank’s asset managers suggest that the best way to interpret current economic trends is by understanding the current economic cycle:
We think a lot about how best to identify our current position in the economic cycle (sometimes referred to as the business cycle). This is because our view on where we are in the economic cycle is critical to the mix of assets we hold across our investment strategies. However, pinpointing our position in this eternal cycle is not an exact science.”
With the impact of the pandemic in 2020 marking the start of a new economic cycle, the bank’s economists expect the global economy to now enter the Mid-Cycle phase, where balance sheets are rebuild and new economic growth is delivered. Handelsbanken’s asset managers concluded:
Given our presumed position in the current economic cycle, we remain comfortable with the levels of risk present in our investment strategies, which are roughly in-line with our long-term average. Typically, the mid-cycle phase of the economic cycle brings with it more volatility in asset prices and investor sentiment. As such, we believe that these ‘neutral’ risk levels are prudent.”