A “Quick & Simple” Outlook On 4 Key Asset Classes

The post COVID era has been a turbulent time for investors, with various push and pull factors impacting asset classes across the board. Investors remain as confused as ever about what to do with their money. Here’s a quick and simple rational outlook on how four key asset classes will fare in the remainder of 2022.

Equities

The accommodative stances of central banks around the world unleashed a flood of liquidity in 2020 and led to a massive run up in stock prices till 2021. With that accommodative stance now being steadily withdrawn to counter the bugbear of inflation, corporate borrowing will become costlier and consumption will fall. Having said that, economic activity remains fairly buoyant despite inflationary trends. Equities will remain volatile and range bound in 2022, with a downward bias. Expect key indices to end the year at similar or slightly lower than current levels unless something changes drastically. Use 2022 to accumulate equities systematically without expectations of high returns.

Debt

Fixed income has had a torrid time for the past couple of years, with most debt funds struggling to beat fixed deposit returns. Now, with the RBI on the warpath with respect to rate hikes, we will witness more volatility at the long end of the yield curve. GILT funds still remain risky despite a lot of the future rate hikes already priced into current yields. The best bet looks like medium term debt funds from a risk reward perspective. Less than one year money can be invested into floating rate funds. Credit risks may be taken in a measured way, with 10-20% of your portfolio.

Gold

Gold prices closed at $1,837 last month, representing a 3% drop from April’s closing prices, as the Fed’s monetary tightening stance gathered momentum. Domestic Gold prices have fared well in 2022 compared to equities – rising by around 6% compared to the NIFTY, which has dropped by roughly 5% in the same period. This is a result of the depreciation in the INR. With the geopolitical situation continuing to remain uncertain, the yellow metal may witness a further rise in 2022, albeit marginal. It would make sense to allocate a part of your portfolio to it to hedge risks.

Crypto

Crypto is showing all the tell-tale signs of a bubble, and seems to have very few institutional takers now as the mood turns risk off. The number of cryptos in circulation went up from ~1200 last year to ~3000 this year, but the total market cap halved! Bitcoin, the bellwether crypto, is trading at more than 50% lower levels than November ’21. These are impending signs of doom. Crypto exchanges seem to be recognizing the fact, with companies like Coinbase and Gemini announcing job cuts and rescinding offers. SEBI has been waving the red flag with respect to crypto investments and celebrity endorsements of crypto exchanges. It doesn’t look like the rot will be stemmed anytime soon, so avoid crypto completely.