Here Are Goldman's Top Trades for 2022

(Bloomberg) -- Goldman Sachs Group Inc.’s top trade ideas for 2022 factor in the idea that markets face a “lower-octane” phase of the worldwide recovery.

The global economy over the coming year will be characterized by strong demand and constrained supply, a team of strategists including Zach Pandl, Kamakshya Trivedi and Amanda Lynam wrote in a research note Tuesday. Divergence in the outlook for monetary policies and risks to China’s expansion are among other key themes.

Among the top trade ideas are shorting the Australian dollar versus Canada’s currency. That’s partly on a bullish view on oil and Australia’s exposure to metals prices and downside risks to China’s economy. Australia is also expected to raise interest rates more slowly than Canada.

The Goldman team advises buying U.S. dollar five-year five-year breakevens on a bet inflation will accelerate, and the Federal Reserve’s reluctance to tighten aggressively will see markets demand more compensation for the risk it will quicken even further. 

The strategists also recommend going long on copper and Brent oil contracts for the end of 2023, as those markets are cyclically tight, with the forwards “nowhere near the necessary incentive level for higher activity.”

In stocks, the recommendations include exposure to Mexican and Russian equities in U.S. dollars, as well as going long on Egyptian shares. The Mexican and Russian markets offer attractive valuations and a “relatively insulated macro backdrop,” the strategists wrote. Egypt has a “relatively high gearing to oil prices” compared with its regional peers, they said.

Goldman strategists have previously flagged the rationale for higher allocations to stocks and cash than the historic norm as bonds struggle. They have a target of 4,900 for the S&P 500 next year -- about 5% up from current levels.

Here are some of Goldman’s other top trade ideas:

• Go long an equal-weighted basket of the Swedish krona, Czech koruna and Polish zloty versus the euro
• Go long Leveraged Loan index versus High Yield Corporate bond index in the U.S. dollar market
• Go long three-year South Africa inflation breakevens

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