Market Watch: How to find sharemarket value in 2022

"You probably don't want to be looking in the spaces that had a great year in 2021 because they probably won't in 2022," says Pie Funds chief executive Mike Taylor of the outlook for sharemarkets.

But making specific predictions was foolhardy and, more than ever, looking ahead was about assessing the big trends.

"There's just too many balls up in the air at the moment," Taylor said.

"It's just impossible to predict. We might get through Omicron absolutely fine and another variant might come out in March or April. So we can only deal with the fact we've got in front of us."

But however the pandemic recovery pans out from here there are some big forces at play we need to be aware of, he said.

Rising interest rates look set to be the key theme around the world.

The process has already begun in New Zealand but the US Federal Reserve has sped up its tapering plans and started talking about hikes in 2022.

The need to get that timing right heightens the chance of a "central bank misstep", Taylor said.

"Do they hike rates too fast? Maybe inflation starts to come down by the end of next year but by that stage they may have already put too much pressure on the market.

"We know from previous cycles that markets can usually cope with rising rates, especially at the start.

"The first year of a tightening cycle is normally still quite positive for equity markets, so unless the Fed gets really aggressive I'd say there is still a positive undertone."

Other pandemic-related economic trends were still causing headwinds, including supply chain and shipping delays which look to be with us for at least the first half of 2022.

There had also been a serious crunch on the supply and cost of labour which could prove more difficult to resolve, he said.

Most Western countries still had borders largely closed from an immigration point of view.

"Not only that but we've also seen the [labour] participation rate fall," he said.

"A lot of baby boomers, as a result of Covid, have decided to take early retirement."

That had seen the participation rate drop by 1 to 2 per cent in a market where unemployment was already very low.

Beyond that these was always a risk of market falls simply because valuations remained so high, Taylor said.

"So it's not unusual for markets to take a bit of breather. We always try and find a reason for it but sometimes there doesn't need to be a reason."

In terms of where to invest in 2022, looking at regions and sectors that had not done well in 2021 was probably a good rule of thumb, Taylor said.

"One of the regions that has been most challenged this year from a market perspective has been Asia."

Chinese tech stocks had struggled all year, he said.

The difference between US and Chinese equities was about 40 per cent - with the US up 20 per cent and China down 20 per cent.

That meant Asian markets now looked significantly cheaper than the US.

"So from an investment perspective, if you want to find value, you should be looking at Asia not the US," Taylor said.

"Even though there has been a correction I think there is still some vulnerability for US tech stocks."

- The Market Watch video show is produced in partnership with Pie Funds.