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Equities

4Q21 Earnings and 2022 Earnings Outlook

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Analysts will be watching profit margins closely for evidence of continued pricing power in the face of high inflation readings throughout the quarter. 4Q21 results may offer a new test for margins as indicators of price and wage inflation continued to accelerate in 4Q21, with headline US CPI reaching 7% year-over-year in December.

 

Citi analysts expect global earnings growth of around 7-8% in 2022, which has the potential to propel share prices higher in the year despite some valuation contraction in the most expensive pockets of the market.

 

While Citi analysts do not believe monetary tightening may be severe enough to induce recession next year, rising rates may certainly start to affect the cost of funding for many businesses and individuals particularly those operating with heavy leverage. Encouragingly, Citi analysts have seen a fairly significant wave of corporate deleveraging over the last year and a half with firms flush with cash able to pay off debts accumulated before and during the pandemic.

 

Amid what is likely to be a strong consumption backdrop in 2022, Citi analysts believe quality equities with resilient pricing power can serve as bulwarks in portfolios against moderately high inflation (apx 3-4% by year-end 2022).

 

While Citi analysts see the post COVID-19 “reopening” trade as largely behind us, sectors and countries dependent on tourism and international activity should continue to see a recovery in revenues into 2022, as both business and personal travel bounces back. This recovery may benefit travel-dependent countries in Southeast Asia, which have high vaccination rates but whose markets have been whipsawed by each COVID-19 wave in 2021.

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