Company profits are likely to recover sharply in 2022, with Japanese shares likely among the main beneficiaries, according to Luca Paolini, chief strategist at Pictet Asset Management.
Paolini says that while investment markets have been turbulent over the past month as investors fear the consequence of the Omnicon Covid variant, he added: “The recently identified Omicron variant of Covid shows the pandemic hasn’t faded away, and markets were clearly spooked by its emergence.
"But the picture is not universally negative. Although Covid has caused distortions and supply bottlenecks, economies have by and large adapted remarkably well to the vagaries of the pandemic.
"We see no signs of ‘froth’ in the shares of companies that would have benefitted from a full reopening of the economy. Valuations for Covid-sensitive stocks suggest investors had been largely sceptical of a smooth reopening of the economy.
"So, despite the heightened uncertainty, the direction of travel is still towards reopening and near-normalisation of economies worldwide. All of which leads us to maintain a neutral positioning on equities and remain negative on bonds.”
He expects inflation to peak in the coming months and then decline, which he says will help corporate earnings. Paolini said: “This growth spurt should benefit parts of the equity market which are most exposed to the economic cycle and support corporate earnings.
“We are optimistic about corporate profits across most regions, reflecting our above-consensus views on economic growth. Globally, we see profits rising by 16 per cent next year, compared to analyst consensus of around 7 per cent. Stronger-than-consensus profit growth is more likely in the euro zone and Japan.”