Liechtenstein July 11, 2022 – The first half of 2022 has come to an end – and many will be glad that it has. Andreas Wölfl, founder and Chairman of the Board of Directors of the European certificate issuer iMaps ETI AG with the iMaps Capital Markets brand, takes a look at the second half of 2022 and offers clear views on the currently prevailing topics: Inflation, Asia and crypto investments. The first six months have turned many things upside down and brought a sell-off across all major asset classes.
Inflation remains at a higher level for years
For the first time since the 1970s, the spectre of inflation has made itself heard. While in the 2010s the increasing globalization and internationalization of supply chains slowed down the inflationary pressure that was built up by the massive expansion of the money supply by the central banks after the financial crisis, this was fully unleashed in the context of the Ukraine war and the trade ice age between the Western world and China. Food prices and energy costs in particular have exploded. At iMaps, we believe that inflation is here to stay – even if we may have already seen the highest rates. We expect an era of years, if not decades, of missing the central banks’ 2% inflation target with rates in the 4-5% per annum range as the new normal.
However, a look at history not only shows that the losses in the first half of the year were of historic proportions. It also shows that the basis for above-average profits is laid in the bear market. Double-digit returns were achieved in the second half of the year after the worst half-year start to date in 1932 as well as in 1962 and 1970. In every year to date in which the S&P 500 has lost more than 20% in the first half of the year, there has been a countermovement in the second half and some of the losses have been recovered. We believe that this will also be the case this time and are positive about the second half of the year. However, we also see a further trend reversal: In times of a bull market, low inflation and continuously falling interest rates, the best option has always been to be broadly invested for the long term. In the future, market timing and individual stock selection are likely to become more important. This is a good opportunity for investment managers with an active investment approach to counter passive ETFs again. Actively managed funds, but also actively managed ETFs and ETPs in particular, will be in greater demand.
Asia remains interesting
While the two blocs “the West” and “Chinese sphere of influence” are increasingly crystallizing at a political level, Asia remains interesting for investors. We consider a focus on Asia, and in particular the emerging and frontier markets, to be a plausible addition because the correlations in these assets are lower. Asia also continues to act as the engine of global economic development. The continent where most people live makes the highest contribution to global GDP. All this is not yet excessively reflected in the valuations there.
Even the many lockdowns in China to enforce the no-Covid strategy and other regulatory projects are no reason for us not to invest in China. These factors have long since been priced into share prices, which is why there are now very favorable growth stocks “Made in China” again.
Despite the double crash: crypto investments will pay off
The crypto markets experienced a veritable bloodbath in the form of a double crash in the first half of the year. The first began at the start of the year and ran parallel to the sell-off in tech stocks. In addition to this purely market-driven crash, there was a second, more home-made crash from May 9: One of the most important stablecoins up to that point, TerraUSD (UST) with a market value of around USD 18 billion, was forced to abandon its dollar peg within a few days. UST was the stablecoin of the LUNA network, which had become the second-largest network for decentralized finance (DeFi) protocols behind Ethereum. Within a few days, tens of billions in value were destroyed, triggering a crisis of confidence that ultimately led to a run on all crypto providers – very similar to a bank run. Crypto lender Celsius emerged from this situation badly battered and bruised, while Three Arrows Capital fell victim to it entirely. Ultimately, it also dragged BlockFi and Voyager Digital, both competitors of Celsius, into the crisis. While Voyager Digital recently had to file for bankruptcy despite rescue attempts, the takeover of BlockFi by Sam Bankman-Fried, FTX founder and presumably the richest player in the crypto world, was able to stave off the run on the crypto lender.
Since the 30-year-old crypto tycoon’s rescue measures, the sell-off on the crypto markets has lost momentum. For us, this is a clear sign that the worst is behind us. A domino effect has been halted and at the now much lower level, some crypto assets are very interesting again. Especially those that are used as native tokens – i.e. as a means of payment – by blockchains and that offer smart contract functionality. Blockchain technology will continue its triumphal march and smart contracts, NFTs, DeFi and Metaverse will see strong growth in the coming years.
Conclusion: When exactly the ideal time is to increase your crypto exposure can only be said with hindsight. However, we at iMaps think that the current time is favorable and that it is riskier not to add cryptos or crypto ETPs to the asset allocation at the current sell-off prices.
About iMaps ETI AG
iMaps ETI AG is an issuer of Exchange Traded Products (ETP) in the Principality of Liechtenstein with a focus on asset manager certificates in the form of Actively Managed Certificates.
iMaps Capital Markets focuses on providing asset managers with a platform for issuing exchange-traded instruments (ETIs) as a white label solution in order to map the respective investment strategy. The spectrum includes ETIs on traditional investments such as equities, derivatives and funds as well as on digital assets as underlying assets. As a subgroup of exchange-traded products, they are an interesting, fast-growing and cost-effective alternative to funds. Thanks to the approved securities prospectus of iMaps ETI AG, it is also possible to offer ETIs publicly to private investors.
