Above-trend growth expected in 2022

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quities should be the asset class of choice once again in 2022. We recommend holding a moderate overweight position in equities.
 
RBC Wealth Management predicts that beyond 2023, the emergency COVID-19 policy-driven effects should quickly wane, leaving growth of the labour force and increases in productivity to drive the economic bus. This points to an extended period of slow GDP growth – perhaps slower than in the decade following the financial crisis. That, in turn, points to a period of intense corporate competition and even greater corporate concentration.
 
Equities can be rewarding in such an environment. But owning the right ones and avoiding the challenged will be even more essential ingredients of success. Stock selection will be key to portfolio performance.

As the two-year-long saga of a global pandemic hopefully nears an end, the Global Insight Outlook surveys the corporate bond landscape in the aftermath of seismic shifts in these markets following unprecedented central bank intervention, and a notable increase in corporate debt loads in response to the crisis.

Corporate debt levels have risen, but they can’t simply be looked at in isolation – it’s all relative. Debt levels haven’t strayed too far from long-term trends relative to GDP. Debt is up, but liquidity is improved with record cash on balance sheets, and interest costs are down. Companies could emerge from the pandemic in far better financial positions despite rising debt loads.

Investors should have exposure to both investment-grade and speculative-grade corporate bonds as part of a well-diversified bond portfolio. Over the near term, we see few credit risks for U.S. corporate bond markets, and little risk that the increased debt levels will act as the potential source of the next crisis.

The report examines how the green energy transformation could represent a grand economic realignment, affecting a wide swath of sectors, and at least rivalling the industrial and information revolutions, if not surpassing them. RBC Wealth Management believes that this could be a boon for companies involved with the multi-industry, multi-trillion dollar infrastructure buildout over the medium and long term.

This as an important investment theme and we anticipate it will attract capital from institutional and individual investors.

However, there are practical considerations and challenges to take into account.

Investors should maintain a pragmatic approach given the serious gaps between net-zero ambitions and potential outcomes. For now, we would focus on opportunities that are likely to find their way to market in the next 5 – 10 years.

As Chinese President Xi Jinping seeks to implement a more inward-looking policy mix in order to foster a broader, more balanced domestic economy and regain China’s competitive edge in the international arena, developments in China are likely to have economic consequences beyond its borders, according to RBC Wealth Management.

Despite its might, China is challenged by two trends that have become entrenched over the past decade – a persistent decline in the working-age population, and a decreasing rate of productivity growth. We believe that the policy response to these challenges may entail profound political and economic changes.

The report explores how China is attempting to adapt to meet these challenges, and the implications for investors in the coming decade.