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The Beijing Winter Olympics may be key for Australia’s largest commodity export

Macro
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Jessica Amir

Australian Market Strategist

Summary:  Looking ahead to the new year, we have asked the Saxo Strats what they will be looking at in the new year. In this article, our APAC Market Strategist, Jessica Amir, gives her view on what investors in Australia and the APAC region should pay attention to in 2022.


Volatility is expected to continue to make waves in 2022. Sure there will be pockets of green and gold that investors can profit from, and they might be in themes such as NextGen Medicine, Commodities, logistics and cyber security, but investors ought to resort to basics if they are investing in securities’ (stocks or CFDs).

Investors need to stay nimble and consider looking for companies in areas like the above, which have strong repeatable cashflows, and are growing their market share in their field. The reason for this is, that interest rates are rising for the first time in a decade, so quality names are more likely to weather the new investment tide, while those companies that carry higher debt and the ones that don’t make a profit, are likely to feel the pinch as interest rate rises (so watch out for growth stocks and tech stocks that carry higher debt in comparison to their earnings).

As for the sectors to watch, investors and traders will be paying close attention to iron ore, which is Australia’s biggest commodity. We will be looking to see if momentum can continue and whether China continues to buy this, as the key ingredient in making steel. Here it is especially interesting to see whether the Winter Olympics in Beijing can play a role. To accommodate the Games, China has had to build out its sport infrastructure, meaning they have needed steel, which in turn means that they have had a larger amount of orders put in on iron ore. It will be interesting to see if China keeps buying in bulk after the Olympics. If it does, the iron ore rally could continue. A big caveat here is China’s property sector, which we still don’t know whether will more or less collapse or will continue on some sort of growth trajectory on the back of China stimulus.

Also in commodities, traders and investors will be paying close attention to lithium stocks. Some lithium companies claimed the best performing posts on the ASX in 2021, but oil stocks were also top performers. Both these rallies should be watched. Oil and oil stocks will also likely continue to dominate, particularly as the oil price is likely to rise from the $70s to $100 level giving rising demand for heating and cooling as the globe’s winters are getting colder, and summers are getting more extreme.

Lastly, banks - the second biggest part of the Aussie share market (behind iron ore miners) are likely to benefit from higher employment (provided Australia and its states don’t go into further lockdowns). And banks will also benefit when the central Australian bank, the RBA, increases interest rates (possibly three times in 2022). This will likely boost banks profitability and dividend payouts. Insurance companies and bond holding companies will also be a focus as bond yield are likely to rise, which supports insurance companies earnings.

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