2022 Outlook: A New World Order

By April 6, 2022Articles

As we enter the second quarter of 2022, we see some longer run trends which are here to stay. Can it still be said that we live in a globalized world? Or rather a “multi-polar” world with more centres of power?


It is likely that the world order has changed for good, in some respects for worse, in some for better.  Some of the longer run trends we see that need to be incorporated in positioning portfolios for decent returns over the coming decade are:

  • The change from globalization to increased fragmentation and the emergence of a “multi-polar” world has been accelerated by this war. This will have implications for changes in the global supply chain and an impact on inflation. There will be two or more centres of power each of which will try to control the flow of information, technical know-how, and other vital supplies within its own sphere of influence.  How will China and India position themselves within this multi-polar world?  And will current US-European unity survive differing economic needs?
  • The “Peace Dividend” which has kept risk premiums low since the end of the cold war, is now probably a thing of the past – geopolitical risk is back in the equation. This also means there will be an increase in defence spending, including on cybersecurity.  Germany has already pledged it will increase its contribution to NATO to 2% of GDP, dramatically reversing decades of post-cold war foreign policy.
  • The global financial system, with the USD as the leading currency, has been “weaponized” in this war as never before. In the past, smaller economies such as Iran and North Korea have had their Central Banks sanctioned, but never an economy as large as Russia.  What will be the (unintended) consequences of this?  An increase in the use of Crypto currencies?  The growth of alternative financial systems, away from the dollar-centric one?  China already has its own SWIFT-type system, and both China and India have allowed payments in Chinese currency for oil and commodities, whilst remaining careful not to violate blatantly Western sanctions.
  • Clean Energy stocks have done well in recent weeks; in particular the EU will be ramping up its development of clean energy adoption in order to wean itself off Russian oil and gas. This accelerated adoption of alternatives will cost money and cause “greenflation” i.e. it will add to inflation in the short term, but will be beneficial to both the climate and the economy in the longer term.
  • In the current “value stock vs growth stock” debate, it is important to remember that, once value stocks have regained a certain valuation-multiple relative to growth stocks, the underlying current investment climate is one where true growth will be increasingly scarce and pricing power is therefore of vital importance to profit margins. The type of stocks to which we want to maintain exposure will be quality growth stocks with solid cash flows and pricing power.

We are mindful of incorporating the above factors in portfolio strategies.


  • We retain a “neutral” exposure to stocks. The regional allocation of Equity portfolios is also neutral; higher risk premiums on offer in European and Emerging Markets stocks are offset by US markets’ “safe haven” appeal.
  • We remain underweight government bonds as interest rates are rising. Global broad based government bond indices are down 7% since the start of the year, failing to perform their traditional hedging role during a period of geopolitical upheaval.
  • While we underweight bonds, we remain overweight “alternatives” which now include gold and commodities as an additional inflation hedge.

As always, please do not hesitate to contact us if you have any questions or comments, about the contents of this report or your portfolio in general.  We hope you are safe, and well, and managing to keep your hope alive in these turbulent times.

To read the complete Manager’s Report, please visit our client login area or contact us.

Date: 5 April 2022

By Marianne Rameau, ASIP, Portfolio Management Team, ISGAM AG

Manager’s Report published on 31 March 2022

Contact: enquiry@isgam.ch

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