Jupiter: Notes from the Investment Floor: The mood music is starting to lift

It is no secret that inflation is starting to moderate, but it has been interesting to hear first-hand from companies, as we engage with them, about the impact this is having on their businesses. The story we’re hearing is one of overall decelerating inflation across the remainder of this year, if not outright deflation, although wage inflation pressure is something that companies are still having to grapple with.

Importantly, the growth picture is looking positive for the sort of environmental solutions companies that we look, particularly in energy efficiency applications where payback periods (the length of time it takes for efficiency gains to pay for the initial cost of the capital investment) have in some cases halved as energy prices have risen. The reopening of China is also a positive for business across various sectors, as previously mothballed parts of their supply chain come back online, and environmental solutions companies are no different in that regard.

In our strategy’s investment universe, we’re in the relatively fortunate position of not having very many business that are directly exposed to the consumer, it tends to be a more business-to-business world. Nevertheless, the perception of the impact of the higher cost of living on reduced consumer spending does seep out to various parts of the wider economy, for example we’ve noticed that companies that feed into the automobile supply chains have been hit by reduced demand, and any company that issues reduced earnings guidance is still being hit hard by the market.

The reality has yet not been as bad as the most dire forecasts were predicting, however. The ‘yet’ is very important in that sentence, as it’s unwise to become complacent, but there’s definitely a growing feeling at the moment that the negativity surrounding the consumer in Q3/Q4 last year may have been an overreaction and I think it’s interesting to note the shift in mood. 

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