Investors need to be ready for both good times and bad next year, Finnish pension fund chief Timo Löyttyniemi is warning, citing a number of risks facing markets.
In a blog, the chief executive officer of The State Pension Fund of Finland (Valtion Eläkerahasto, VER), said: “Tensions appear to be running as high as in a penalty shoot-out in an ice-hockey game.”
He said 2022 looked very different from 2021.
“Good times may well continue but just as well some of the risks may materialise and snatch victory. It is advisable to be prepared for both eventualities,” he said.
Corporate earnings had rebounded strongly in the US and Europe from the lows a year ago, he said, but added that even so, the projections for economic growth in 2022 remained fairly conservative.
Löyttyniemi highlighted areas of particular uncertainty that could come into play next year, including concerns about continuing economic stimulation measures, the Chinese real estate market, the Russia/Ukraine military standoff, and COVID-19.
There were signs governments were becoming more cautious about pursuing massive stimulus programmes under current circumstances, he said. Sovereign debt levels had risen and fiscal policy was already dominating monetary policy, he said.
“If growth, inflation or market forces fail to save the day and reverse course for indebtedness on time, greater difficulties are likely to lie ahead,” the CEO warned.
Löyttyniemi said the problems in China’s real estate sector would spill over into 2022. Problems would mainly be reflected in GDP growth rates, as the real estate sector accounted for a quarter of total output, he said.
“One way or another, geopolitical risks are on the table every year, this time in spades,” Löyttyniemi wrote.
On trouble between Ukraine and Russia, he said a war between them would create geopolitical uncertainty in the marketplace and a spike in energy prices.
Regarding the pandemic, he said it seemed that the coronavirus would continue to plague societies and economies. “We are heading for a new normal, but it means living under the shadow of continuous restrictions and new vaccines in a way that will, with time, be perceived as normal,” he said.
Löyttyniemi said it appeared the world could work in this way too, which was proof of the ability of people and economies to adapt, but lamented: “One can only wonder how smoothly the wheels of the world have been turning despite the coronavirus.”