The sun is shining bright here in Singapore as I sit down and rethink about everything that has happened in 2021. These few lines are too large a constraint to adequately express the tumultuous impact our lives have felt since the Covid outbreak, how developed equity markets marched through all hesitations to close the year at historical highs, how Chinese markets on the other hand cratered on renewed political and economic sustainability fears, and how the rollercoaster in people’s emotions throughout the year must have brushed on to the Fed Chair Jay Powell, making him change his mind on inflation depending on direction of the wind .

I will therefore focus on the future and on what we think 2022 will bring us. The upcoming year is likely to be a turning point: monetary policy normalization seems to finally be on the cards, not just in theory but also in practice. Markets will have to fight against restrictive monetary policy, something they are not used to, and the one time they had to do that in recent history (Q4 2018) it did not turn out so well.

Are we particularly worried? Not so much: global demand remains strong, supply chain disruptions will be eased over the coming quarters, and inflation will decline also thanks to higher base years. This being said, a potential Fed balance sheet reduction plan will be hard to digest and investors should be prepared for volatility and lower asset returns for the upcoming 2 to 3 years. Holding on to a solid portfolio core will be crucial, with the majority of alpha likely being created from tactically trading a market which is expected to fluctuate at a much larger magnitude.

Yes, the sun is shining, hopefully on a bright new year for all of us.

Massimiliano Bondurri

Founder & CEO