Nick Clay

Nick Clay (pictured), head of global equity income at independent investment firm Redwheel, has identified semiconductor and retail firms as sectors to outperform in the second quarter of 2022.

Supply chain disruption in the semiconductor sector has led to knock on effects across industries from information technology to automobile manufacturing.

Mr Clay commented “The market has become obsessed with a small number of tech companies with overblown valuations, and forgotten about a lot of others. There has been massive underinvestment in chip companies, and there’s now a frantic panic to increase the capacity of chips. Semiconductor chip companies such as Qualcomm and TSMC are in a strong position now with pricing power, which is important during times of rising inflation.”

Another sector that Mr Clay identified as having a strong upside potential is retail. He said, “The pandemic caused a cycle in retail – fast-tracking the business models of those strong brands with an online offering. Take Zara for example, with online sales growing 137 percent during lockdown, continuing to grow around 40 percent since the stores have re-opened. These businesses are now in a far stronger market position, with far better-balanced businesses and with a strong consumer to sell to. They are better placed to weather cost of living increases and a mild growth slow down.”

And finally, Mr Clay cautioned “It’s not inflation which we consider the biggest economic risk right now, but mistakes in policy – raising interest rates too high, too soon. The effect on inflation from the Russian-Ukraine war is only increasing the risk of policy mistakes. We feel we are already late in this cycle, and given that debt has rocketed up for both corporates and governments, the rising rates into a slowing economy will be very difficult for markets and corporates alike.”