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Reading the tea leaves: how right were we with market risks in 2022?


Last year I wrote an article looking at what we considered the big risks for financial markets to be in 2022. We thought it was worth writing for traders and investors of all stripes, because after all, regardless of the type of car you are driving, the same pothole will still mess up your suspension.

You can read the full article here. At the time I was writing it, my hand was slightly forced, because the primary and most immediate risk I foresaw was a possible mutation in the Covid virus. At the time of writing the article, a new variant called Omicron had just cropped up in South Africa. We ran the piece slightly earlier because we could see the number one risk pressure point for investors coming true already.

1. Covid: gone away or here to stay?

So this was an easy one. Covid was in the driving seat still with markets in Q4 2021. We could see there was significant risk of any kind of tougher or more infectious mutation precipitating a sell off. Omicron appeared in South Africa even quicker than we anticipated. As it turned out, it was not as serious as it could have been, thanks in large part to the process of mass vaccination and the natural evolutionary action of the virus. However, Covid remains a consideration, as the lack of MRNA vaccination programs in China is playing havoc with the world’s second biggest economy, which has knock on effects with assets and markets in the rest of the world.

2. Inflation

We also flagged up inflation as a major risk in 2022. It was starting to become a factor by Q4 with some analysts already worried about what the Fed’s reaction would be. This was going to have a major impact on some stocks, but there was also the prospect of higher interest rates and increased living costs for consumers all over the world. We ranked this as our number two risk, as we felt it would have an effect on most investors in some way. Indeed, many of the investors I have spoken to in the second half of 2022 are simply sitting on cash and watching it lose value!

3. European energy crisis

We were particularly prescient on this one. We’d already seen some disruption in the gas market and going into the last winter could see how electricity prices were heading up. This was causing some electricity suppliers to simply throw in the towel altogether. Third Bridge noted at the time that over 10 UK electricity supplies had folded between August and November 2021.

As I said in my forecast, “The energy sector is going to be an especially risky place to be for smaller companies in 2022, unless you are a producer. However increased energy costs will also feed into corporate profits – a higher oil price is also going to make life tougher for the likes of the transport sector. Most companies also consume electricity and will feel the pinch.”

4. Cryptocurrency regulation

Of all my predictions from last year, it looked like this one was not going to come true. SEC Commissioner Gary Gensler told us last November “it’s still the Wild West out there.” That said there seemed to be remarkably little regulatory pressure on the cryptocurrency markets in the course of this year. As I wrote, “Two guys in a basement with a computer are not a currency or even a bank. Regulators will likely seek to focus on entry points and try to sort the wheat – regulated cryptocurrency platforms – from the chaff (dodgy brokerages in Vanuatu and Panama).”

As it turns out, 10 guys in a penthouse in the Bahamas are not a major market nexus for digital assets either. We took the view that more regulation might frighten a lot of money out of the sector; it turns out Bitcoin is not an inflation hedge and some of the biggest and savviest investors in the world will still back an emperor with no clothes (and unkempt hair).

But let’s not pronounce crypto dead, as some market commentators seem to want to do, including the European Central Bank.

“Cryptocurrencies, blockchain and other Web3 technologies are still in their infancy, having only properly stepped into the public eye less than a decade ago,” says Alan Vey, Chairman of the Aventus Network. “Naturally, there will be periods of volatility and change as these technologies establish a foothold. Like other financial markets, there are clear cycles of peaks and troughs. For example, in 2019, the price of Bitcoin plummeted at the same time the Fed Reverse announced an interest rate hike. Many commentators thought the price would not be able to recover, yet it clearly did.”

5. Great military power contest

I listed this one last among my risks going into 2022. I thought there was a chance of some major military action, and if you’d asked me last November when I wrote the article, I’d have come down on the side of a Chinese invasion of Taiwan. But I also flagged Ukraine as a potential target for Russia, especially as some Russian troops were already ‘on exercises’ in neighbouring Belarus. Ukraine has dominated headlines for most of this year. The war there has had a knock-on effect in various areas we follow, including mining stocks, oil futures and indeed food markets. As I write this Russia looks increasingly like it is going to lose the war in Ukraine, with the Kremlin trying desperately to find some form of ‘peace with honour’ formula it can sell to the people back home.

Where is all this taking me? I’m working right now on my risk predictions for 2023, plus also penning something on the markets to watch in the New Year. These will be coming out later this month. Do make sure you sign up to our newsletter below to get them.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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