Biggest risk to global equities in 2022 is the sharp shift in central bank policy

The post-pandemic rebound in stocks has surpassed its peak, and a survey to institutional investors this month showed more market participants expect value stocks next year to outperform growth stocks that have surged this year. While risks remain, more than 40% of respondents see stronger economic growth as the main upside catalyst for equities in 2022. But a hasty policy shift by central banks for counter-inflation will be the biggest downside risk to global equities next year.

After a strong rally this year that has propelled U.S. and European benchmark stock indexes to record highs, the survey results reveal some common industry expectations and concerns as we head into 2022. The survey, which ran from Dec. 3 to 13, included fund managers and strategists at major investment firms.

The findings of the survey coincide with Bank of America's latest global fund manager survey, which also showed that for the first time since May 2018, hawkish central banks were seen as the biggest tail risk, followed by inflation and the COVID-19 rebound. Investors are headed for major policy meetings this week from the Federal Reserve, the European Central Bank, and the Bank of England, which are expected to provide clear signals on the pace of tapering and the withdrawal of stimulus.

Most respondents said soaring inflation or aggressive central bank action to curb rising prices would be the biggest danger next year.