With some luck, and a bit of hope, we are cautiously optimistic that 2022 should be the year in which most of the world begins to move toward a post-pandemic era—albeit after many fits and starts along the way. From a public health perspective, COVID-19 vaccination rates and other telling numbers (including case counts, hospitalizations, and virus-related deaths) suggest that the life-altering global pandemic may finally be poised to start winding down. In addition, many world economies are growing and appear to be on a path toward recovery from the unprecedented COVID-19 shock.      

To be clear, we are not out of the woods just yet. The virus, with its multiple potential variants—e.g., Omicron—and its ability to break through vaccine-induced immunity in some cases, has proven difficult to entirely vanquish. And even if next year does bring meaningful progress, as we expect, it’s critical to stress that it will not be a truly “post-COVID” world in 2022, as the virus will most likely remain in global circulation for years to come. Nor will the economic and other improvements we anticipate be sudden or universal. Many countries still lack adequate vaccine coverage, whether due to ongoing supply issues or vaccine hesitancy among their populations. And lingering challenges around international travel and other activities we took for granted pre-COVID may well persist for the foreseeable future, making a full reversion to completely normal conditions an uncertain prospect anytime soon.

Nevertheless, barring a virus mutation that renders the vaccines ineffective, or some other unexpected plot twist, 2022 will hopefully mark the start of a long-overdue global rebuilding process.

Investors should consider seeking out quality, fundamentally sound companies that are no longer drowned out by the pandemic.

With the right approach, we believe investing in China may remain an attractive investment idea in 2022 and beyond.

Theme 3: Playing the Net-Zero Game

One of the most pervasive investment themes in today’s environment is decarbonization—the global-energy transition. With more pronounced changes to the world’s weather patterns becoming evident over time, many governments are moving past mere verbal commitments toward concrete regulatory steps and investment programs aimed at combatting climate risks. This so-called green revolution, to some extent a large-scale reimagining of how economies work, will obviously require capital investments in order to be successful, and we believe getting on the right side of what is likely to be a decades-long phenomenon with transformative global potential will become increasingly mainstream next year.

Climate mitigation/adaptation strategies are one way to play this theme, but investors also shouldn't underestimate the value and potential benefits of environmental-social-governance integration in general in the context of their overall investment portfolios.

Theme 4: Going Long Secular Thematic Trends

Since the arrival of COVID-19, several secular thematic trends have broadened out and gained momentum, creating compelling new investible opportunities. These include, but are not limited to, financial technology (fintech), enterprise intelligence and innovation, and a combination of these two trends that has recently helped to spawn the “metaverse” megatrend.

Not surprisingly, such trends reflect the global macroeconomic backdrop. For example, enterprise intelligence has been spurred on by mounting wage inflation and labor shortfalls that are pushing many companies toward automating more tasks where they can and making greater use of cloud-based computing capabilities. Such evolving corporate needs and decisions are becoming more apparent not only in developed-market economies, but also in their emerging-market (EM) counterparts, especially China. This will be worth watching next year.

Investors can target theme- and/or sector-specific strategies tied to the trends that most interest them. Notably, however, thematic investing of this sort is not the same as index investing. You need to do your homework to ensure you’re buying what you really want. 

Theme 5: Taking a Deeper Dive into China

We think China's extraordinary growth and development over the past few decades demand that it be both a topic of investment discussion and, where appropriate, perhaps a standalone portfolio allocation or the main component of an investor’s total EM exposure. Of course, this is often easier said than done, given the complexity of the Chinese economy and the systemic economic, societal, and structural changes that are still going on in the country. The good news: with such seismic change comes numerous opportunities for discerning investors. However, China’s recent regulatory announcements and their well-publicized negative impact on some Chinese assets have highlighted the need for investors to properly understand and carefully evaluate these opportunities.

Thus, with the right approach, we believe investing in China should remain an attractive investment idea in 2022 and beyond, despite recent bouts of market volatility (FIGURE 3). Consider either a dedicated China fund or a more diversified EM strategy.

Important Risks: Investing involves risk, including the possible loss of principal. Security prices fluctuate in value depending on general market and economic conditions and the prospects of individual companies. • Fixed-income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Foreign investments may be more volatile and less liquid than US investments and are subject to the risk of currency fluctuations and adverse political, economic and regulatory developments. These risks may be greater, and include additional risks, for investments in emerging markets or if the Fund focuses in a particular geographic region or country, including China. • Risks associated with investments in China include currency fluctuation, political, economic, social, environmental, regulatory, and other risks, including risks associated with differing legal standards. • Focusing on investments that involve climate change opportunities or sustainable and environmental initiatives may result in foregoing certain investments and underperformance comparative to funds that do not have a similar focus.

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