Investment returns tipped to be lower in 2022

It is the start of a new year and financial market experts are making their annual fearless forecasts for the performance of share and property markets.

If the pundits are right, returns from major asset classes will not be anywhere near what they were last year.

Australian share prices, as measured by the benchmark S&P/ASX 200 Index, ended 2021 about 13 per cent higher. After adding dividends, the total return was a stellar 17 per cent.

However, Shane Oliver, chief economist at AMP, says despite solid economic growth, rising profits and still easy monetary conditions, investors should expect only reasonable returns this year.

He is forecasting the S&P/ASX 200 to finish the year at about 7800 points – about 5 per cent higher than its current level.

CommSec says Australian shares could outperform their global counterparts in 2022, supported by strong relative economic growth and higher dividend yields. However, it is a bit more conservative than AMP in its forecasts, tipping the S&P/ASX 200 to end the year with a gain of 200-400 points from current levels.

Property had a stellar 2021 and experts are predicting further price growth this year, albeit at a much slower pace.

Sydney dwelling prices rose by 25.3 per cent last year and Melbourne’s prices ended the year 15.1 per cent higher.

However, the most recent CoreLogic figures show the tide is turning.

Sydney’s monthly dwelling price growth rate, which peaked at 3.7 per cent in March last year, slowed to just 0.3 per cent in December. Melbourne’s monthly growth rate, which peaked at 2.4 per cent last March, was minus 0.1 per cent in December.

AMP’s Dr Oliver expects house prices to soften and to start to fall later this year because of poor affordability, rising fixed rates, higher interest rate serviceability buffers, reduced home buyer incentives and more listings.

AMP economists expect property prices to rise just 5 per cent nationally this year, with prices likely to fall by 5 to 10 per cent during 2023.

Commonwealth Bank economists expect dwelling price growth of 7 per cent nationally in 2022, before a 10 per cent fall in 2023.

However, the national forecasts likely mask a wide price divergence between the big cities and regional areas.

Simon Pressley, the founder of Propertyology, says detached house prices in Adelaide, Brisbane, Hobart and Canberra could “easily” grow by more than 30 per cent over the next two years. He says that some regional locations could do even better.

Pressley says the price growth in the regions is being driven by net migration from the cities and the work-from-home phenomenon, which he reckons is likely to become a permanent change.

Economists at Russell Investments are forecasting official interest rates to remain unchanged this year. That is mostly because the economy has not yet seen the same levels of wage pressure as other countries.

If they are right, that will mean bank deposits continue to pay next-to-nothing. That would help support the sharemarket, which is expected to pay a grossed-up dividend yield of about 5 per cent.

Of course, there are plenty of issues that could derail any of the above forecasts.

The worry list includes the ongoing COVID-19 pandemic and the risks of other new variants, a rise in inflation and interest rates, any fragility in Chinese economic growth, and tensions between Russia and Ukraine.

Then there is the no small matter of a federal election, which must be held no later than May.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions. 


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