Volatility isn't going away in 2022, but here are some pointers to keep your portfolio on a more even keel.

If there's one word to keep in mind as you think about getting your investment portfolio in shape for the new year, it's "resilience".

With COVID-19 still clouding the 2022 outlook, the strength of global economies and investors' portfolios could be tested by risks such as higher inflation, geopolitical tensions and tighter regulations.

To keep your investments resilient amid volatility, our analysts from the Investment Strategy and Research team at Maybank Group Wealth Management (GWM) have identified some key investment themes to keep in mind in 2022.

Sustained, but slower global growth

Expect growth to continue in 2022, but at a slower pace. What investors will need to look out for are three key risks.

• Inflation: While inflation is expected to moderate, it may turn out to be more persistent than expected. Central banks may be forced to accelerate monetary policy tightening that could eventually dampen growth and increase the likelihood of stagflation. This could hurt consumer demand and eventually corporate earnings.

• US-China tensions: COVID-19 occupied most of our attention over the past two years but there are signs that the simmering tension between the two largest economies could start to flare up again. The last time it did, both the United States and China started a trade war that hurt global trade. A re-escalation of tensions could put further strain on the global economy.

• Tighter regulations: One wildcard that could swing growth the other way is increased regulations, especially in technology. The Chinese government has already started to regulate Chinese tech firms in 2021, while both the European and US authorities are looking at anti-competitive behaviour by the tech behemoths. Higher taxes could hinder global growth as well.


Stay overweight in equities

The healthy macro environment bodes well for risk assets, including equities, as the global economy reopens further. As such, Maybank GWM is "overweight" on equities, which are likely to perform well, and is "underweight" on fixed income or bonds. The team rates both oil and gold as "neutral" in its investment allocation.

The Year of the Tiger is likely to see more moderated returns from major stock markets as compared to last year. But all is not lost. Backed by a strong corporate earnings outlook, Maybank GWM remains optimistic and believes investors should allocate part of their investments towards equities.

Look out for the re-emergence of Asian equities as a theme this year: Japan, China, Singapore and Indonesia still offer reasonable valuations and have more room to rise. The US and Europe markets are likely to deliver positive – albeit more subdued – returns this year.

When it comes to sectors, continue to look at cyclical-oriented sectors, particularly those with exposure to consumer services that will benefit from further economic re-opening. At the same time, stay invested in structural growth trends such as healthcare and technology for longer-term gains. These companies should also be less affected if growth unexpectedly stalls.

In contrast, with interest rates expected to rise, fixed income or bonds could also see gains erode in 2022.


Build portfolio resilience

While Maybank GWM suggests a pro-risk approach in asset allocation, investors should keep their eyes on building portfolio resilience in the new year.

The reason? In view of the lingering growth and policy uncertainties, investors should be prepared for volatility to return from time to time. As such, maintaining a cash buffer and avoiding over-leverage is key. Active selection could also play a bigger role as market returns moderate in a maturing recovery.

Last but not least, it remains critical to maintain a diversified portfolio with an increased emphasis on sustainability to help future-proof your investments.

With all this in mind, investors can be cautiously optimistic that 2022 will prove to be a year of resilient returns.

the bottom line:

Stay invested but maintain a diversified portfolio to mitigate downside risks and achieve resilient investment returns in 2022.

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