The base case for AG is one of “normalisation of the economy”, moving from a recovering economy to strong GDP growth, rising purchasing power and increased investment, while keeping admittedly higher inflation under control, according to the 2022 Outlook hosted online by AG Insurance and hosted by chief strategist Olivier Colsoul (pictured) and CIO Wim Vermeir.
“Shortages of all kinds of commodities are weighing on international trade. Nevertheless, we notice that companies’ order books continue to fill up and world trade is picking up again. We are also seeing the first signs that bottlenecks are easing. As a result, underlying demand remains strong. We also expect the high savings surpluses in many countries to be unwound and consumption to pick up, supporting industrial production,” Colsoul said.
Economic analysts are watching the development of inflation with suspicion. Under pressure from energy prices, inflation is rising again to levels not seen in more than a decade. Colsoul said he expects these high inflation rates to continue for a while, but to gradually weaken and stabilise at a higher level than is currently the case.
“The recovery of the European economy will probably be a bit slower than earlier forecasts, but it will remain on track. The European Recovery Plan and the climate ambitions expressed in the ‘Green Deal’ should create breathing space and strengthen productivity. The transition to a low-carbon economy will require massive investment and increase the risk of inflation. But at the same time, we believe it will have a positive long-term impact, particularly for the European Union.”
Impact of asset classes
- Government bond yields, especially in the US, will have an upward but more volatile trend, but this will not fundamentally change the low-interest environment.
- Corporate bond interest rates are back at pre-Covid levels. There are still interesting returns to be had here, but only for those who make the right choice.
- Supported by a growing economy, rising incomes and good corporate profits, equities in particular offer interesting opportunities in the medium term.
Loans on the rise
AG manages (September 2021) more than EUR 78 billion in financial assets in its investment portfolio. Chief Investment Officer Wim Vermeir has systematically reduced the share of government bonds and, to a lesser extent, corporate bonds over the past 5 years. The importance of long-term illiquid loans, such as infrastructure loans and loans for social housing, and - especially in the past year - equities, on the other hand, has increased.
“For several years now, we have been placing strong emphasis in our management on a sustainable and responsible approach, which is integrated into the entire investment process,” explained Vermeir. “For example, in 2021 we excluded a number of additional sectors from investment. These include unconventional oil and gas extraction and the gambling industry. In addition, since last year, we have also introduced a policy of involvement and exercise of voting rights in the companies in which we invest. This means that we enter into dialogue with these companies. We demand transparency and urge them to achieve sustainable objectives. In doing so, we focus primarily on the energy sector and those companies in which we have a significant stake.