It is up to you whether to believe in astrological forecasts made for the year of the Water Tiger. We would like to present you with the forecast for financial markets provided by Bloomberg, one of the leading US news agencies, on the grounds of the key issues suggested by more than 50 investment firms. What issues will set the tone throughout 2022?

Issue 1 is certainly high inflation which is expected to persist worldwide beyond 2021. Major central banks have a small number of tools at their disposal to tame inflation. At the same time, mistakes in monetary policies entail grave risks. Central banks are facing a dilemma: a slowdown in national economies on the one hand and soaring inflation on the other hand. Monetary authorities worldwide find it more challenging to deal with high inflation month after month. In this context, rampant inflation will erode investment opportunities this year. A lot of analysts warn that stock investments will bring just one-digit returns.

Issue 2 is a shift towards active investments away from passive investments. The year 2021 was benign for American high-tech giants such as Apple, Tesla, Alphabet, Microsoft, etc. Analysts point out that an average share of a company from the S&P 500 index has already lost 15% from its one-year high, though the index itself has shed just 2%. In other words, 15 behemoths account for 40% of the market capitalization of the S&P 500. Analysts warn that they have already reached their peak profits. Thus, it would be a nice strategy to invest in energy companies or banks outside the US, first and foremost based in Europe.

Issue 3 is hedge funds’ revenues as analysts expect a record capital inflow in them. Demand for such investments was low due to the COVID-19 crisis. Now investors are eager to catch up with returns. Experts also anticipate buoyant demand for assets beyond the US as well as assets of small and medium capitalization.

Issue 4 is a decline in returns from direct investments compared with a year ago. Returns from direct investments have been on a rise over the recent decade, thus paving the way for a broad capital flow. As a result, hedge funds raised fees for their services. The fees are expected to grow because Wall Street investment firms now handle almost $1 trillion. Such humongous funds are currently stored in direct investment accounts. Therefore, returns from direct investments are likely to go down.

Issue 5 is the expanding crypto market. Bitcoin is winning favor with market participants who consider the digital token as a mainstream investment nowadays. A flood of crypto investors contributed to the growing capitalization of the whole crypto market that topped $3 trillion in Q4 2021. It means that reputable hedge funds are poised to add cryptocurrencies to their portfolios. In turn, the wide recognition of crypto assets will attract new investors. Besides, more publicly traded companies will make corporate investments in cryptocurrency and sell their stocks in digital tokens.

Issue 6 is ETFs. Exchange-traded funds were created as a passive investment strategy. In fact, ETF shares are a new kind of derivatives that are traded as ordinary shares. The first ETFs (both ETFs with leverage and inverse ones) were invented in 2006. Niche ETF or thematic ETFs were launched more than 10 years ago. For the time being, almost $10 trillion is managed in the ETF industry. Any financial instrument evolves in the course of time. In the case of ETFs, risky and gimmicky ETFs boomed in 2021. Moreover, synthetic ETFs gained popularity. Unlike a conventional ETF, a synthetic ETF is an active type of investing in dubious instruments with inflated commissions.

Issue 7 is an average retail investor whose portrait has been changing year after year. According to JP Morgan, the level of an average investors’ income has settled slightly higher than an inflation rate and way below any investment sum in the recent 20 years. A low income of an average investor comes from some bad habits such as emotional decisions, erratic selling, and misunderstanding fundamental information. Analysts underscore discipline as the prime feature to multiply incomes. This feature makes a big difference in investment returns.