Inflation, COVID and war

A person walks past the New York Stock Exchange (NYSE) at Wall Street on Nov. 16, 2020, in New York City. A new survey asks market professionals what they think are the biggest risks for markets in 2022. Angela Weiss/AFP/Getty Images/TNS

The biggest risks for markets in 2022 are inflation, the coronavirus and geopolitical tensions, according to some 700 respondents to a Markets Live Global Survey.

More than 30% cited inflation as among their biggest worries when asked, “What do you see as the biggest tail-risk for markets in 2022 and what probability do you put on this tail-risk transpiring?”

Respondents often tied the risks of higher inflation to central banks either falling behind the curve, or tightening too quickly.

Over a quarter were concerned about the coronavirus, with almost half of those focused on a new variant. The more detailed responses cited governments imposing new restrictions or central banks adjusting their policy in response.

About 23% cited geopolitical tensions, and 16% specifically used the terms war, invasion or conflict. The main examples given were rising tensions between China and Taiwan, and Russia and Ukraine, particularly the possibility of an invasion. Any escalation in either case was seen as a segue to greater conflict involving more countries.

The fourth highest tail-risk, with 13% of responses, was the Federal Reserve, particularly the chance the U.S. central bank would tighten interest rates too fast. More broadly, 10% said that policy errors were a tail risk. While 5% cited risks associated with central banks globally, responses were split on the likelihood of policy makers either falling behind or overreacting to inflation.

When it comes to China, respondents saw both geopolitical and domestic risks. Contagion linked to China’s economic situation was frequently cited, with the potential for slower growth and an impact on the housing market.

Some other cited risks included: Supply chain (about 5%), cryptocurrencies (4%), and stagflation (2.6%).

The Markets Live Global Survey, conducted from Dec. 5-18, had 873 respondents. Of those, 44% were based in North America, 37% in Europe, and 10% in Asia. The top three primary job roles were portfolio manager (35%), research/strategy/economist (15%), and buy-side trader (12%).

The methodology involved in analyzing the 672 responses to the tail-risk question included tallying the frequency of terms, and calculating the percentages against the number of responses to this question. Specifics were then manually analyzed.

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Tribune Wire

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