Bullish for 2022 - and beyond

MARKET movements are unexpected yet surprisingly rational in hindsight. What nobody expects now - and hence is likeliest - is 2 or 3 more great bull market years.

My 2022 forecast is a wiggly, sideways, often scary global stock market until autumn, followed by a strong rally delivering double-digit 2022 gains that may last into 2024.

A key global market driver will be America's political cycle. Since 1925, stocks fell in about half of the United States presidents' inaugural years. The other half? Usually hugely positive. That was 2021, with world stocks soaring 25.3 per cent till Dec 27.

The Straits Times Index, lacking the big tech plays driving global stocks, lagged but still rose 12.9 per cent. Markets saw past scare stories - from supply chain snarls to inflation worries to China's real estate woes - and instead welcomed normalising economies and lowered legislative risks.

But Covid mutations, inflation, China-Taiwan tensions and more have eliminated early 2021's excess optimism. Global gross domestic product (GDP) expectations have tumbled. Such fears breed fears, such as Omicron hospitalisations and rising energy prices. This will continue, driving a choppy first half. Meanwhile, in America, political shrillness normally explodes as November's "mid-term" Congressional elections near.

But that is normal. Stocks typically meander for much of the start of American presidents' second years, with the first half typically flattish and only positive about half of history.

Then things flip. Stocks gained in 83 per cent of US Presidents' second-year fourth quarters, as investors priced in political gridlock. The president's party routinely loses clout, ushering in a government incapable of extreme legislation and creating regulatory calm. Stocks love that.

Expect a supersized 2022 version. Democrats' edge in Congress is near-zero, and Republicans should wrest control in November.

By autumn, today's fears will have fizzled. Their remedies are in place now. Globally, inflation will ease as supply and labour constraints subside. The latter may take longer in Singapore given restrictions limiting migrant movement. But recent work permit-holder retention schemes and efforts to boost senior employment are a start. Waning inflation means long- and short-term interest rates will remain surprisingly benign. Long rates may even decline globally, as slowing bond purchases by the US Federal Reserve and the European Central Bank have already been priced in. Omicron is highly contagious but mild. Late next year, the world will finally accept endemic Covid.

China's political manoeuvring is always a wild card. But it is targeting economic stability - pumping out liquidity to support the economy. A stabilised, growing Chinese economy means demand from Singapore's biggest export destination should remain strong.

With the US election clarity should come a late-year global rally. That gridlock effect steamrolls right into 2023, and possibly 2024. US stocks have risen in 92 per cent of presidents' third years, with no negative years since 1939 - when they fell just -0.9 per cent in USD. Fourth years have been positive 83 per cent of the time, with 11.4 per cent average returns.

All this reverberates globally, even in Singapore. The STI has a 0.6 historical correlation with America's S&P 500 (where 1 signals lockstep movement and -1 indicates polar opposites). Other regions even more closely parallel America. The eurozone correlation with the S&P 500, for instance, is 0.82.

In early 2023, the realisation stocks could continue to rally would likely spur fear-of-missing-out buying - creating a final, euphoric sprint into 2024.

All this bodes well for Singapore, and better for global stocks. Big growth stocks shine brightest late in bull markets, and the STI's strong value tilt will limit upside. So, shop globally. Target America's tech and tech-like companies in communication services. Look to French luxury companies. Consider healthcare giants in Switzerland, the UK and the eurozone, such as pharmaceuticals and biotech players.

Investment success relies on fathoming the unfathomable. In 2022, that means seeing this bull market has abundant room to run - before others do.

• The writer is the founder, executive chairman and co-chief investment officer of Fisher Investments, an independent investment adviser serving both individual and institutional investors globally.