This earnings reporting season has been the first opportunity to hear from companies about how they think 2023 will develop. I would say the broad message is that things look okay. Growth will not be abundant and margin expansion will be tough to come by, but companies are not prophesying an earnings collapse. The contrast between economic headlines that seem to be focused on doom and gloom and the robust corporate earnings outlook in Europe feels quite stark.

We have been hearing about supply chains normalizing — maybe not the way they were before Covid, but product is flowing, and companies have adapted. That’s a huge improvement in the underlying operating environment.

Over the last few years, we have had lockdown, reopening, supply constraints, lockdown, reopening, and then inflation kicking in followed by significant price increases. Assessing underlying growth rates has been very difficult against that backdrop, so for companies to be coming out with positive news on growth trajectories in a period of normalising conditions is, I think, extremely reassuring.

When it comes to inflation, specifically, the messaging has been quite varied across different companies, sectors and geographies. We focus on businesses that are innovative, that are spending to generate growth in demand. Those businesses are delivering price increases, and their customers have accepted this for the most part. Actually, a bit of inflation is probably quite good in the long run; once customers get used to price increases, higher prices become easier to accept.

China reopening after Covid lockdowns has been a big theme for European companies. The CEOs of two European beverages companies have recently told us that Chinese consumers are returning rapidly. These consumers are fed up with being stuck indoors, they want their freedom back and they want to return to social interactions. In the same vein, we see flight volumes in the region recovering rapidly. Overall, China is a significant market for European companies, and those companies we speak to are optimistic that this current resumption of consumption will turn into a healthy, normal demand environment for the Chinese consumer. Whether we recover back to where we were pre-pandemic, or whether we recover to a lower level is unclear today, but right now the recovery is positive.

Within the European portfolios we’re ultimately obsessed with finding companies that are doing differentiated, innovative things within their portfolio of products and services that allows them to grow year after year regardless of the economic backdrop. For example, while much investor attention is on headline inflation, we are more interested in the item of branded jewellery that was launched in 1969 at $250 and today retails for $6900, an annualised price increase well in excess of inflation.