Four Key Investment Trends for 2022

By Valerie Hernandez, International Banker

 

With 2021 characterised as the comeback year from the pandemic, the world is crossing its fingers, hoping that the strong economic recovery can be sustained throughout 2022. With that in mind, next year will hopefully prove to be one of significant growth for a number of important industries, with plenty of opportunities for investors to enjoy.

Here we look at four investing trends that show exceptional promise for 2022.

Sustainability

Whether it’s renewable energy, ESG (environmental, social and governance) themes or green finance (such as green bonds), the trend of investing sustainably has taken off considerably in recent years. The effects on sustainable, impact and responsible investment classes of expanding green-energy adoption and growing global awareness stemming from the pressures of key sustainability issues such as climate change, diversity and inclusion will be unequivocally positive in 2022.

Taking renewable energy as just one example of this bright outlook, the International Energy Agency (IEA) found in May that annual renewable-capacity additions in 2020 increased by 45 percent to almost 280 gigawatts (GW), the highest year-on-year increase since 1999. And even more astonishing is the IEA’s projection that with exceptionally high renewable-capacity additions becoming the “new normal” this year and next, renewables will account for 90 percent of new power-capacity expansion globally. “Solar PV development will continue to break records, with annual additions reaching 162 GW by 2022—almost 50 percent higher than the pre-pandemic level of 2019,” according to the IEA. “Global wind capacity additions increased more than 90 percent in 2020 to reach 114 GW. While the pace of annual market growth slows in 2021 and 2022, it is still 50 percent higher than the 2017-2019 average.”

And with November’s COP26 (26th UN Climate Change Conference of the Parties) conference in Glasgow, Scotland, providing the world with a snapshot of the progress being made across several sustainability issues, investment managers will be keen to push ESG themes further as part of their fund-allocation processes. According to French bank BNP Paribas, factor investing—targeting specific drivers of returns across asset classes—will be crucial in supporting successful investing in this area. “ESG integration in factor investing intends to improve the ESG features of the portfolio while keeping the factor exposure at a very high level,” Stanislas Mesland, head of equities strategies for BNP Paribas’ Quantitative Investment Strategies team, explained. “It enhances our offer by considering not only companies’ financial related metrics but also non-financial ones, to enhance the stock selection. Our research shows that by combining factors and ESG, investors can improve long-term performance, reduce risk and increase diversification.”

Electric vehicles

The boom in sustainable investing will also extend to connected markets, with electric vehicles (EVs) perhaps best positioned to capitalise. Indeed, EVs represent a crucial mechanism for governments, industries and consumers to reduce their carbon footprints and meet formal and personal clean-energy goals.

The Paris-based International Energy Agency (IEA) noted earlier this year that around three million new electric cars were registered in 2020, which was an all-time record and 41 percent more than in 2019. “While they can’t do the job alone, electric vehicles have an indispensable role to play in reaching net-zero emissions worldwide,” Fatih Birol, the IEA’s executive director, stated. “Current sales trends are very encouraging, but our shared climate and energy goals call for even faster market uptake.”

In its outlook for 2022, EV-charging company Virta expected 6.4 million vehicles (both EVs and plug-in hybrid-electric vehicles, or PHEVs) to be sold globally by the end of 2021, a massive 98-percent increase over 2020’s figures. “The year 2020 was already a major leap forward in terms of electric vehicle sales. 2021 is a whole new story. The market is growing. It’s growing fast. And it’s growing everywhere,” the company stated.

Indeed, next year should see a wave of new EVs coming onto the market. “Lucid is on track to deliver thousands of its ultra-premium Lucid Air in 2022. NIO is expanding into Europe for the first time ever. The Fisker Ocean is expected to hit the market in late 2022. BMW and Audi are launching a whole new fleet of premium EVs in 2022. The Rivian pickup truck will make some waves. Canoo’s lifestyle van is expected to start deliveries,” said Luke Lango, InvestorPlace’s senior investment analyst, in early October. “There’s a lot on the EV docket in 2022. And that’s why we’re pounding on the table about EV stocks right now. We think investors have a generational opportunity to buy high-quality EV stocks at a huge discount before they go on a huge run in 2022-plus.”

Artificial intelligence (AI)

Although still largely in an evolutionary stage, it seems likely that AI will make significant progress in 2022, positioning itself as arguably the most important and influential of the new wave of technologies currently transforming the world. Almost every major industry in every corner of the world is leveraging AI and increasingly intelligent machines to either complement the work being done by humans or replace it outright by providing a superior level of competency.

Chatbots are helping banking customers sort out their financial affairs, doctors are using AI to diagnose patients more accurately and make predictions about their future health, and companies across all sectors are utilising machine algorithms to detect cybercrime patterns.  

According to a recent survey from Gartner of technology and service providers with plans to invest in AI, one-third said they expected their investments to top $1 million over the next two years. What’s more, 87 percent of the survey’s respondents who considered AI a major investment area believed that investment in AI would increase at a moderate-to-fast pace through 2022.

“Rapidly evolving, diverse AI technologies will impact every industry,” said Errol Rasit, managing vice president of emerging technologies and trends (ETT) at Gartner. “Technology organisations are increasing investments in AI as they recognise its potential to not only assess critical data and improve business efficiency, but also to create new products and services, expand their customer base and generate new revenue. These are serious investments that will help to dispel AI hype.”

And while the development and effective implementation of AI remains very much in its infancy, with technology adoption not always successful at this stage, the opportunity to invest in what is sure to be among the most transformative and consequential technology themes existing today cannot be ignored.

Cannabis

Perhaps not as obvious as other investment themes currently grabbing the headlines, the cannabis industry nonetheless shows immense scope for growth in 2022. Arguably the biggest driver for this growth is the wave of legalisation actions for adult use and medical purposes across the United States, including in important, heavily populated states such as Connecticut and New York.

In its “Cannabis Market Projections for US & Canada: July 2021” report, Seattle-based cannabis-industry analytics firm Headset expected the US cannabis market to surpass $30 billion in 2022, upgrading the company’s $28 billion estimate provided during the first quarter. The revision came mainly on the back of new legislative approvals allowing adult-use programmes in New York, New Jersey, Connecticut and New Mexico, as well as a medical programme in Alabama.

“Last quarter, we estimated that the US market would reach about $28 billion in annual sales by 2022. With the addition of several new cannabis markets (Alabama, Connecticut, and New Mexico), we now project that the US cannabis market will surpass $30 billion in 2022. There is not much change in the Canadian forecast for 2022, but this is to be expected since the market is fully legalized,” according to Headset’s report, which also projected that the cannabis industry would grow by 27.7 percent to $23.6 billion by the end of this year and by a further 29.3 percent to $30.5 billion in 2022.

According to Sami Toivola, the report’s leading data analyst, flower will account for the largest market share of retail marijuana in 2022 at 47 percent of all product sales (up from 42 percent this year), followed by vape pens and cartridges at around 22 percent of sales. Edibles, pre-rolls and concentrates will each make up about 10 percent of the market.

 


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