The post-pandemic market is obsessed with macroeconomics, with market enthusiasm waxing and waning with interest and inflation rate numbers, and the developments of the war in Ukraine and China’s economic policy. The ongoing tug of war between investors, policymakers and authoritarians is making for a painful landing of the pandemic-inflated economy. In the short term, we expect uncertainty to persist; however, over the long term, we know that the future, like always, will be determined by the optimists. The market tends to be more cynical than optimistic, which creates cycles of fear. We do not make macro predictions or try to anticipate when the market focus will shift. Therefore, our outlook for 2023 takes a longer-term view, shunning precise predictions and looking at sustainable investable trends and understanding the backdrop for some of our investments.
Globalization is reversing
2023 will bring important changes that could direct flows of capital for at least the next decade. Globalization is reversing. After decades of moving production and sourcing to lower-cost regions, companies have found their supply chains fragile and susceptible to shock. In the coming years, we think companies will trade efficiency for resilience. Local supply chains, including those for energy, transportation, and semiconductors, will require innovation to address a shortage of skilled labor in developed countries. Advancements in automation and robotics, software-enabled design and simulation, and sustainable materials are areas that are attracting innovation – and capital. While software, semiconductors, e-commerce, and cloud will still matter, we believe investment in physical assets will increase in importance. Industrial suppliers, manufacturers, and industrial real estate are areas with important exposures to this trend.

Beyond infrastructure around supply chains, we anticipate increased focus on energy security and its environmental impact. This combination will likely mean greater emphasis on alternative energy, including emerging energy sources such as hydrogen. The Infrastructure Investment and Jobs Act of 2021, the Inflation Reduction Act of 2022 in the U.S., and legislation elsewhere are spurring investment into these transitions. While green energy’s initial attraction was its diminished environmental impact, the future benefits will include price stability and national security. Innovation includes areas such as industrial heat generation, hydrogen electrolysis, and small modular reactors.
The technological transformation
These trends do not shift our strategy; rather, they increase our opportunity set. Software and semiconductors in particular, as well as technology in general, remain important and are also caught up in the changing landscape. As resources such as human capital and raw materials become scarce, these areas will be essential to increase productivity. In addition, certain themes from the past remain important. The transformation from analog to digital continues, connectivity is essential, and commerce shifts from cash to digital payments.
Avoiding predictions, and focusing on the micro level
The market remains macro-obsessed, meaning it is driven by expectations of interest rate policy, inflation numbers and ultimately economic growth. It’s a fool’s errand to make economic forecasts, especially in the short term, meaning markets could remain volatile as participants swing between optimism and pessimism. Our style is not to time markets but to consider factors at the company level. In general, however, we think optimism over the long term is the best approach, especially as the valuations of the companies we invest in suggest an overly pessimistic market. We maintain our view that innovative and disruptive companies that provide value to their broad range of constituencies are good investments during economic uncertainty. More importantly, as we see innovation and disruption moving throughout the economy, investors who only consider tech stocks – or who invest in innovation based on GICS1 sector methodology – could very well miss opportunities. Against this backdrop, when we consider the individual companies we invest in, and leave the obsession on macro for others, we see many reasons to remain optimistic.
Outlook 2023: the next phase shift
1 Global Industry Classification Standard

Denver-based NZS Capital manages more than $1 billion in assets and focuses on innovative companies that create more value for all their constituents – including investors, employees, vendors, the communities they operate in and the planet as a whole – than they take for themselves. NZS Capital has a strategic partnership with Jupiter Asset Management.

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