Irish equities - Where have all the good times gone?

It’s hard to believe, but as markets tumble, inflation rockets upwards, supply chain issues heighten, and the spectre of possible recession looms, some Irish companies may be reflecting upon the time when the "only" issue to deal with was a global pandemic with a certain degree of fondness.

From a personal perspective, high inflation is not something I’m overly familiar with, despite a career spanning over twenty years in equity markets. On the contrary, having spent a considerable portion of that career covering Japanese equities, deflation was the name of the game. However, a potentially less than welcoming economic environment is a story I’m all too familiar with, and experience has taught me that even amidst difficult years, there will always be structural growth stories and plenty of opportunity for the success of companies. In many cases, that success correlates with a few key themes that pervade despite uncertainty – demographic changes, evolving technologies, energy conservation, etc. In this regard, long-term vision is the aim and good management teams can show their mettle by adapting to not only the short-term uncertainty but also forming plans with a view to the long-term vision and opportunity.

So in these times of economic and political uncertainty, what can we (and Irish companies) know for sure? Well, several listed Irish Equity Management teams have recently had the opportunity to hold investor events to set out plans for the next number of years and despite the broad range of sectors and geographies covered, there are several recurring themes that appear repeatedly when companies are planning for the long-term.

The Energy Transition

We, and many others have written about this theme in the past, and it is absolutely not going away any time soon. If anything, the war in Ukraine has strengthened the focus in Europe and accelerated the pace towards energy independence and the so called "net-zero" alignment. New details set out in the recent "REPower EU" plan include accelerating renewable energy targets from 40% to 45% by 2030; increasing solar energy targets; "drastically accelerating" offshore wind permitting, doubling the capacity of heat pumps; saving energy and investing in hydrogen and energy storage - to name just a few areas. This provides ample opportunity for companies operating in a variety of sectors to be exposed to growth.

The Changing Nature of the Food Industry

Once again, changes in the food industry were already evident before COVID-19 or indeed the war in Ukraine, with diets changing and authenticity around sustainability becoming of increased focus for consumers for some time. However, the war in Ukraine has particularly highlighted issues surrounding dependence on any one particular region for certain food supplies. Adding that current issues surrounding supply chains, it’s clear that we are likely to see changes as easing food insecurity becomes paramount for European countries. Controversially, there is also some argument that inflation in food prices is only just starting to be felt and the situation is likely to become even more heightened in coming months.

Climate also plays a part in the food industry, with the EU "Farm to Fork" strategy a key element in aiming to make food systems fair, healthy and environmentally friendly in the future. This includes targets for a reduction in nitrogen fertilisers and emerging innovative technologies. Overall, while no one knows all the answers yet for the industry, it is clear that great change is underway in food, which could lead to opportunities - whether that be in changes to the way we use land, BioSolutions, technology, more local production, or other areas.

Population Changes

We’re probably all familiar with the statistics – the global population is set to reach over 9 billion people by 2050, from the circa 7 billion we have today. This will obviously have an impact on the need for food (as per our point above). However, the changing demographic also has implications for healthcare (in particular as the population ages); the labour market, and wealth. Furthermore, where people choose to live is changing and urban populations are growing, which again has implications for land use and biodiversity. Also, all those extra people will need somewhere to live, with long-term implications for housing. That’s without any changes in migration if some of the predictions surrounding weather patterns due to climate change prove to be correct. Overall then, population changes could lead to opportunities in the housing, healthcare, and food sectors to name a few.