In another article today I talked about my biggest investing lesson from the pandemic, and that is to expect the unexpected. I think this article can be seen as an extension of the same lesson. The unexpected is not always the unknown, like a virus, or that which cannot be timed, like vaccine development. Sometimes, it can also just be as seemingly banal as policy measures undertaken to support business and the economy. And that is what I am really going to bear in mind for my FTSE 100 investments for 2022.
Policy interventions lead to booming sectors
Let me explain. There is no denying that the coronavirus wreaked unexpected havoc on the stock markets last year. But policy measures put in place to stem the spread of business challenges yielded unexpected benefits too. The most prominent example of that is China’s policy stimulus, which brought a mini-boom for FTSE 100 industrial metal manufacturers. In a typical economic slowdown, this cyclical segment would be hard hit.
But the policy support provided to it meant that it became among the best performing sectors around even during last year’s slowdown. Even now, the best FTSE 100 dividend yields are offered by industrial metal companies. While their stock prices have taken a bit of a hit in the past few months on tempered forecasts for metals prices, I think there is reason to believe that the party can go on for them. US President Biden’s ambitious infrastructure plans could keep them buoyed, if it goes through. So I would keep a look out for developments in this aspect.
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FTSE 100 real estate boom
Another example closer home is the real estate sector. The UK government’s stamp duty holiday was a big reason for the housing market boom last year. Like metals, the property sector is also cyclical. During booms, when people experience rising incomes, they are more likely to buy assets like houses. Similarly, slowdowns could mean lower employment numbers and slower rises in incomes, which in turn could reduce the chances of house purchases. But buoyed by lower tax rates, people in the UK bought a whole lot of houses last year. FTSE 100 house builders have reported strong order books because of this.
However, the policy is now being rolled back. And this is perhaps already visible in on-the-ground numbers as well. There are predictions of an expected slowdown in the housing market now. Also, the UK’s construction output, which can be seen as a partial proxy for house building, is also declining. In other words, policy support both encouraged and is now slowing down the real estate segment.
What I’d buy now
My point here is that I am looking out for all kinds of policy actions in 2022 that could be significant for my FTSE 100 investments. I am looking at the two segments mentioned, and also at banking, which could gain big time as interest rates rise. In fact, I have said earlier that I am bullish on the segment, partly for this reason. I am looking to buy banking stocks now.
