2022 started on a fairly predictable note. Stock markets were largely on the upswing as coronavirus cases were subsiding. Prospects for the UK economy looked better despite rising inflation. And companies continued to post healthier results. If this scenario had continued, my investing strategy for 2022 would have been straightforward. I would have focused on cyclical growth stocks, which were most likely to experience an upturn.
In stock markets, expect the unexpected
However, anyone who has been investing for long enough knows that we’re always safest when we expect the unexpected. Because that’s exactly what transpired. Come February, and Russia invaded Ukraine. With that came a stock market plunge. The FTSE 100 index fell to sub-7,000 levels, wiping out more than a year of gains.
Russia is an energy producer. And the two countries together are commodity exporters in general. As a result, war put pressure on prices. So, the threat of inflation is bigger than before. The Office of Budget Responsibility forecasts that by the final quarter of the year, the UK’s consumer price inflation will be north of 8% in annual terms. So we should brace for more stock market impact.
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The FTSE 100 upswing
But as I was saying earlier, we should expect the unexpected. Despite the fact that the war continues and inflation keeps rising, stock markets are on an upswing again. In fact, as I write, the FTSE 100 index is close to its pre-pandemic highs. It’s not difficult to see why. Some of the biggest constituent stocks by market capitalisation are well placed right now, despite the current circumstances.
But this trend could change too. Coronavirus, for instance, isn’t out of the way. This fact might have been somewhat overlooked since the war started, but I’m a bit nervous every time I look at the latest data on it. The underlying point I’m making here is, the stock market’s direction can change in a flash.
Investing strategies for 2022
So now I’m looking at three different investing strategies to navigate my way through 2022. The first of these is to focus on FTSE 100 defensives. Healthcare and pharmaceutical stocks are my go-to investments as far as defensives go. These might not be the fastest-growing stocks, but they do tend to rise at a broadly steady rate over time. They’re especially good to hold during uncertain economic times.
Next, I’m investing in stocks that aren’t impacted by inflation, in fact, they might even benefit from it. Think of oil stocks and miners. Commodity prices are expected to remain firm over the rest of the year. I already hold many of them in my portfolio. There’s a possibility of a drop in these, of course, if the economy slows down. But that’s always a risk with cyclical stocks.
Finally, I’m focused on green stocks. The UK government recently released its energy security strategy. If implemented right, it could be beneficial for such companies. This in turn would make them good long-term stocks to hold.
