Stan Wong's Top Picks: January 12, 2022
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Top picks from Stan Wong, portfolio manager, Scotia Wealth Management
MARKET OUTLOOK: With the start of a new year, we maintain a constructive outlook for equities in 2022. We see a repeat year of positive, yet more moderate, equity returns along with another challenging year for bonds. While the Omicron variant may have delayed some economic activity, the overall global economy has not been derailed in our view.
Central banks will start to raise interest rates and taper asset purchases this year, but they will do so in a relatively subdued manner. As supply bottlenecks ease, central banks will likely be more tolerant of inflation risks and maintain fairly accommodative monetary policies.
Inflation will most likely settle above pre-pandemic levels, but we do not see hyperinflation as a probable scenario. In 2022, new targeted vaccines along with antiviral treatments will further help the fight against COVID-19 and ease any business and economic restrictions.
Broadly speaking, equity valuations appear somewhat full which will make stock selection increasingly important moving forward. Investors heavily allocated to richly valued, high-growth technology stocks should take caution. Rising bond yields will likely weigh on high-growth, long-duration stocks with low or negative margins.
Generally speaking, higher interest rate yields make the promise of future profits less valuable in present value terms. In Stan Wong Managed Portfolios, we prefer cyclical stocks and have increased our allocation to value stocks. The financial, energy and health care sectors look particularly attractive to us.
From a geographic perspective, we like U.S. equity markets for its breadth and depth of high-quality names but see valuations in international markets as somewhat more attractive. In our fixed income allocation, we are underweight government bonds in favour of inflation-protected bonds and short-duration corporate bonds.
