What might be the fastest growing industries in 2023?

This time last year, many economists were predicting a buoyant year ahead, characterised by economic recovery. 2022 has been a lesson in how events can derail the most carefully-created predictions – investors may have felt the same about 2020 and 2021. As such, any predictions about the sectors to watch in the year ahead necessarily come with a risk warning.

The energy transition, for example, is a necessity, with the inexorable laws of physics behind it. Equally, certain technologies keep businesses safe and make them more efficient. It would seem odd if chief executives decided to withdraw spending, even in straightened economic times.

Healthcare is one of the fastest growing industries with astonishing innovation: breakthroughs such as the mapping of the human genome have expanded the boundaries of what medicine can achieve. Again, a reversal seems unlikely.

That said, 2023 will not be easy. Recession is likely to hit the UK, Europe and probably the US as well. China is slowing. Inflation is unlikely to ease until the second quarter of the year. Interest rates will almost certainly need to rise further. This is a tough backdrop for markets to make progress. Cash rates are higher, which may deter some investors from taking on the risk of equity investments. It is difficult to see confidence returning to any significant degree.

This should perhaps encourage investors rather than deter them. The problem with investing in long-term structural trends is often that they become too popular, share prices are bid higher and investors end up paying too much. If markets are generally gloomy and investor confidence low, it may be possible to buy into these long-term trends at knock-down prices.

Any initial hopes that the war in Ukraine may be short-lived have dissipated and most foresee a drawn-out conflict. Even if the war ended tomorrow, it seems unlikely that European powers would re-embrace Russian energy. The war has brutally exposed the risks of relying on an unstable country for something so important.

This makes the energy transition not just an environmental imperative, but a national security imperative. The total supply of energy also needs to grow - power consumption is projected to triple by 2050 as electrification and living standards grow.

There will be layers of development. Areas such as transportation are relatively easy to decarbonise. The electric car is not significantly different to the internal combustion engine car and does not require significant reskilling on the part of drivers or manufacturers. While there are challenges – such as the development of a charging infrastructure – there is a pathway for change. 

Heavy industry and aviation are likely to be more difficult to transition. Areas such as steel and cement manufacturing – which are seeing significant demand from infrastructure development - have been seen as a challenge. Hydrogen may be the answer but has historically been too expensive. Nevertheless, the EU and US have committed significant capital to the development of green hydrogen solutions and this may be a viable technology by the end of the decade.

This is the integration of digital technologies into all areas of a business, often in combination with a move to the cloud. CEOs increasingly recognise that it can bring efficiencies, help measure productivity and create new opportunities.

Many companies started their transformation during the pandemic, recognising that embedding digital technologies would give them more flexibility to deal with supply chain problems, changing customer expectations or a mobile workforce. They may now be two or three years into the process and just starting to realise productivity and efficiency gains. Backward steps seem unlikely.

There are a number of ways to invest in this fast growing market. Investors can look at the cloud computing companies, or those running cloud analytics. Digital transformation ETFs will include companies that derive the majority of their revenue from digital assets. This might include digital asset exchanges, payment gateways, miners, equipment, technology, and service providers, digital asset infrastructure businesses, and e-commerce.

Pioneering work to sequence the human genome has unlocked new treatments for previously complex conditions. Healthcare can be increasingly personalised, which makes it more effective. mRNA technology has already been used in the Covid vaccine, but also has potential uses as a treatment for cancer and a range of other diseases.

Investment group Baillie Gifford calls this a ‘biological revolution’. It says: “The biological revolution is about pushing our understanding of biology and unpacking millions of years of evolution, the insights from which will transform healthcare and redefine our health and wellbeing.” Companies are emerging that are pushing the boundaries of medical science, bringing transformational change in healthcare. Investors can participate at an early stage in its lifecycle.

2023 looks set to be a tough year for the economy and, potentially, for financial markets. However, this can be a good moment to buy into multi-decade global economic trends at lower valuations. They may not be as cheap again. You can access an extensive range of markets and assets through the Fineco platform, with comprehensive resources and webinars from experts.