Despite lingering question marks over equity markets, the outlook for companies in certain sectors looks more promising than some investors expected.
With headwinds still strong, the second half of 2023 and beyond requires a focus on secular themes that could create mispriced opportunities in companies set to benefit from longer-term trends, according to PineBridge Investments in its mid-year outlook.
“Volatility continues to present compelling investment opportunities spanning the equity markets, and we see long-term potential in companies supporting or benefiting from three key areas of capital investment: near-shoring, automation, and net-zero emissions,” explained Rob Hinchliffe, portfolio manager and the firm’s head of global sector cluster research.
Near-shoring gathering steam
As near-shoring and “friend-shoring” gain traction, the firm believes this trend should benefit industrial companies, including US-focused manufacturers.
It is also positive for banks and consumer product companies in countries such as India and Mexico that are benefiting from supply chain shifts.
“Years of trade wars and Covid-related supply disruptions have caused companies to rethink their distributed supply chains and to bring operations closer to home and to end consumers,” said Kenneth Ruskin, managing director, director of research and head of sustainable investing at PineBridge.
Strategic industries such as semiconductors and batteries are leading the charge, with over $250 billion of investments in near-shoring expected over the next five years in the US alone.
Increasing factory automation
Another key opportunity will likely emerge from increasing factory automation to address tight labour, in turn boosting related suppliers.
“Companies are increasingly interested in automation as hiring labour becomes more difficult and expensive,” explained Hinchliffe. “Moreover, the near-shoring movement requires greater automation to ensure that product costs don’t rise due to higher labour costs in the US and other developed markets.”
Direct beneficiaries include IoT (Internet of Things) and machine vision technology providers, which are enhancing automation and plant efficiency. Industrial software companies also stand to gain from this increased emphasis on automation and productivity.
Ramping up net-zero spend
Further, as net-zero spending rises, it will spur companies that help clients meet related goals.
In particular, segments set to benefit from this trend include heating/air conditioning products makers, mining equipment manufacturers, rail and rail equipment providers, and electric vehicle battery manufacturers, added Ruskin.