2022 Signals “Regime Change” for Markets and Corporates, MUFG Says

Factors for consideration include rising rates, monetary and fiscal stimulus, the prospect of greater volatility, and the shift toward mid-cycle recovery

The Capital Markets Strategy team at Mitsubishi UFJ Financial Group (MUFG) released its annual outlook to C-suite executives analyzing how corporate strategy is transitioning to a post-pandemic world in 2022 amid rising interest rates, a pivot to tightening in monetary and fiscal policy, and the prospect of higher volatility.

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“2022 will be a time of ‘regime change’ for the global economy, policy and markets, as we have accelerated rapidly into a mid-cycle recovery characterized by decelerating growth, policy tightening and higher volatility,” writes Tom Joyce, Head of Capital Markets Strategy, along with Director Hailey Orr and Associate Stephanie Kendal. “Visibility remains low for accurately forecasting economies and markets.”

The team notes that, against this backdrop of global rebalancing, corporates have embarked on a “feverish pace” of capital-expenditure (CAPEX) investment and strategic activity in response to a rapidly evolving landscape that includes elevated government regulation, vertical integration of supply chains, and massive investments in technology, innovation and sustainability.

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The team’s 2022 global markets and economic outlook spans the following areas:

1. Global economy rebalancing: A detailed assessment of global growth, policy tightening, supply chain dislocations and broadening inflation, with a view toward moderation in late-2022 and early-2023
2. Regime change in markets: An analysis of the structural transition underway in the global economy and markets, including the impact of technology innovation and the “greening” of the financial system
3. Strategic positioning from strength: A review of the remarkable strategic adjustments that corporates have made during the COVID-19 pandemic, fortifying their balance sheets for a new period of elevated investment and strategic activity
4. Investing in a post-pandemic world: A spotlight on the accelerating CAPEX cycle underway, historic M&A volumes, technology’s transformative impact on business strategy and the importance of keeping pace with environmental, social and governance (ESG) factors
5. Resilient credit markets: A review of the U.S. dollar-denominated credit market, which is a deep, liquid market offering more continuity than change (especially as compared with other markets and economies globally during the pandemic), and whose technical and fundamental drivers remain strong

6.     A new era of big government: An assessment of “regulatory activism” (which has increased globally over the last decade following massive government rescue efforts during the financial crisis of 2008-2009 and the COVID-19 pandemic) and the role of government in “policy de-globalization”, infrastructure spending, climate transition, and anti-trust merger scrutiny

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