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AXA IM: Robotech could be resilient during potential downturn

AXA IM identifies two areas within the robotech theme that are likely to weather the recessionary storm.

Speaking to FSA in an exclusive interview, Tom Riley, head of global thematic strategies at AXA IM, believes selective areas in robotech could be resilient during the potential economic downturn this year. 

In particular, Riley prefers healthcare because it is less economically sensitive and can be defensive as economic growth is poised to slow down. 

“Healthcare budgets tend to be relatively similar irrespective of economic conditions. The demand is also stable as people are equally likely to become ill and need a surgery whether the economy is good or poor,” he said.

Riley believes robotic surgery is experiencing a tailwind from pent up demand during the Covid-19 pandemic. 

“A lot of surgery procedures were deferred or cancelled as patients with Covid were prioritised in hospitals or medical staff such as doctors and nurses were redeployed to Covid wards or they themselves were infected and could not work.” 

He believes as the global medical system slowly normalises, there is going to be a catch-up period where people who should have had surgical procedures months ago are starting to come through the medical system. 

Apart from the pandemic, the penetration rate of robot assisted surgery is increasing as there are a higher range of surgeries that can be done by robots as technology improves, Riley said. 

Specifically, he prefers companies that are involved in robot manufacturing and/or developing software such as procedure planning or imaging technologies. 

“The hardware and software go hand in hand. The manufacturers of robotic surgery are increasingly incorporating more software within their tools,” Riley said. 

Another sub-sector within robotech that Riley favours is the semiconductor sector. 

The sector struggled in 2022 due to the falling consumer spending and worries over recession. 

“At the moment, companies that have been struggling for growth are those that are more associated with smartphones due to the weakness in customer discretionary spending,” he said. 

Yet, Riley continues to see opportunities within the sector as he believes demand for chips within the automobile and industrial sectors will stay resilient even in case of an economic downturn. 

He believes the demand for semiconductors in cars will continue to be driven by the shift towards electric vehicles and the increased adaptation of driver assistance systems. 

Moreover, automotive sales have been at historical lows over the last three years due to the disruption to supply chains and shutdown of vehicle production plants. 

“We’re already at quite a low base in terms of sales. That means although we could enter a recessionary environment, there’s probably still some pent up demand from people who have been unable to buy cars over the last few years,” Riley said. 

“That will help probably support that industry a little bit in a tougher environment.” 

As inflation plateaus at a higher level, expensive wage levels have also catalysed the introduction of automation technology in the industrial sector such as warehouses. 

“The need to introduce automation into logistic centres to support e-commerce has always been there, but it’s become a lot more attractive now due to the labour scarcity,” said Riley.

“The demand for e-commerce and warehouse capacity picked up very significantly due to the labour shortages through the pandemic period.” 

Part of the Bonhill Group.