Inflation will remain the dominant question for markets in 2022

Crucially, we do not expect supply-chain inflation to morph into sustained wage inflation pressures, which could drive longer-lasting inflation concerns.

At the moment that is our base case, but we are very aware of the risks that inflation does become more entrenched, hence our balance within portfolios at the current time. 2021 was not the year to swing the ‘investment bat’ decisively behind value or growth. In contrast, 2022 may provide an opportunity to move our asset allocation more decisively behind one of these investment styles.

Finally, taking a step back, we should remember the broader context, frequently expressed as TINA (There Is No Alternative). Guiding our continued preference of equities over bonds, expected real returns on equities (using longer-term inflation expectations) are still positive, whereas for developed market government bonds it is firmly negative.

With a constructive earnings outlook helping to keep equity valuations in check, this is likely to leave the clear relative value of equity earnings vs bond yields an enduring theme for 2022.

Edward Park is chief investment officer at Brooks Macdonald