2022 was a big year for financial markets with the war in Eastern Europe, inflation, rising interest rates, energy security, plus the UK’s political changes. So what sectors do we think could bring opportunities in 2023?

Factory automation

Factory automation is using machines to replace humans or more efficient machines to replace less efficient machines, meaning higher quality, better speed and lower cost manufacturing. These machines or products can be anything from robots to sensors to software for making goods or processing food.

All countries are investing in factory automation, but the main drivers are the United States, Europe and China. In a higher wage inflation environment, like now, increased automation becomes even more important to protect company margins.

Energy efficiency

The energy efficiency sector includes products that make buildings run more efficiently, with lower energy consumption and fewer emissions. Think heat pumps, new HVAC systems, insulation, solar panels and building management software. This could also include making the electricity grid more efficient and applies to data centres.

This sector also covers electrification, meaning things like electric vehicles and batteries. The effort and capital cost to shift to an electrified global economy is huge and so we see a lot of investment potential in 2023 and beyond. Driving growth is strong global demand for more sustainability, government policy changes in Europe, and the war in Eastern Europe bringing higher energy costs.

Medical devices and equipment

Diagnostic and scientific equipment is a large growth area. We think these companies have a strong long-term outlook, despite the current gloomy economy, because patients still need to be diagnosed and new drugs still need to be discovered.

The rapidly ageing populations in most Western and also some Asian countries means demand for diagnostic tests is growing as older people tend to get more ailments and need more treatment.

Advances in technology mean that the latest machines for diagnosis and drug discovery are much faster and more efficient, causing a strong replacement cycle. New treatment techniques such as cell and gene therapy are also emerging, meaning new machines need to be purchased. These companies often have recurring revenues from consumables as well as selling the machines. In our view these elements all add up to a strong investment sector this year.

Consumer discretionary

Consumer discretionary means non-essential but still desired items. This could be appliances and electronics, apparel, footwear, luxury items, entertainment and cars. Think of things you’d like to buy if you had some extra money. This might include the travel sector too, which had a lot of challenges in 2022. We think there is likely to be great opportunities for sizeable returns this year.

In New Zealand consumers are spending less and this will be the case for a while. But in the US and Europe, this started earlier than here, so spending is likely to pick up globally before things change in New Zealand. In addition, share prices of companies in this sector are likely to pick up well before demand starts to pick up, so we will want to deploy cash early.

Retail as a whole is a sector that in the next six to 12 months could be looking attractive. We are spending some time on this sector at the moment to understand how end demand is tracking, and where there could still be excess inventory.

Correct as at January 2023. Mike Taylor is the Founder and Chief Investment Officer of Pie Funds Management Limited. You can view our disclosure documents on the Pie Funds website. For personalised financial advice, please speak to a financial adviser.