Analysts at investment bank Credit Suisse believe that corporate earnings will be the biggest driving force behind global equities this year. But they caution investors to anticipate a return to more normal growth rates and not to expect the bumper earnings bounce seen in 2021 to continue.
‘In line with our earnings expectations, we expect high single-?digit equity returns in 2022 compared to double-?digit returns in 2021,’ they said. The analysts calculate earnings growth to average 7.6% in 2022, compared to the 6.4% compound average annual growth rate chalked-up in the decade before the pandemic.
THE BIG BOUNCE
Earnings during pandemic-ravaged 2020 fell 11.9, says Credit Suisse, but then rallied strongly last year. According to data based on the MSCI AC World index, Credit Suisse calculate earnings rose 48.8% in 2021.
‘Earnings growth has been very robust, with MSCI AC World earnings surpassing pre-?pandemic highs in 2021,’ said Credit Suisse. ‘This has driven strong equity returns in 2021, though the price-?to-earnings ratio declined as levels were already elevated and investors anticipated that the extraordinary fiscal and monetary support of the Covid-?19 era would begin to fade.’
BACK TO NORMAL
The investment bank anticipates a year of ‘normalisation’ in 2022 with the recovery continuing, albeit at a slower speed and tilted toward the first half of 2022 after the significant boost ushered in by the unprecedented fiscal and monetary stimulus, and a very volatile period during the initial stages of the pandemic.
The investment bank also believes that household balance sheets remain in good shape.
Consensus forecasts imply earnings growth in the high single digits for 2022, which is close to long-?term averages, the bank said. ‘In our view, the constructive macroeconomic environment should support revenue growth. We expect margins to remain at solid levels.
Credit Suisse also thinks that equities will be supported by the so-called ‘TINA’ factor, or ‘there is no alternative’ argument for equities.
