Post Pandemic Realty

We start 2022 with a diminished risk of further shutdowns but are still living with substantially different economic realities. Further fiscal stimulus is constrained by increasing inflation expectations and central bank algorithmic policy solutions contain much risk. Further deviation from expected political or economic outcomes will likely destabilise asset pricing. Markets are fairly valued at the upper end of ranges, likely benign and successful policy action will deliver a tighter credit environment with expectations returning to central tendency values. This will deliver stable asset values through 2022. Longer term inequalities however require a much more substantial solution. Debt spirals and re-evaluations of China type, common prosperity policies can trigger a sizeable shift in risk premiums and earnings forecasts. Remain invested with allowances for drawdowns, any substantial increase in exposure must be accompanied by confirmation that inflation has peaked, supply chain solutions are working and productivity improvements are real and sustainable. Better exposures can be found in inflation resistant currencies and assets, together with late starter Asia economies where still to be completed post pandemic recovery paths are more predictable.