The global economy will fall into a recession in the first quarter of 2023 (if it’s not already). Recessions typically last 15 months (2008 was 18) followed by 48 months of expansion, so what are the best resilient sectors primed for investment and growth?
Lessons from 2008 to 2022: The top performers and macro changes
In 2008, the iPad didn’t exist, the dominant enterprise smartphone was Blackberry and the dominant network technology was GPRS, EDGE and 3G.
This is a good start, but a lot has changed.
Search less. Close more.
Grow your revenue with all-in-one prospecting solutions powered by the leader in private-company data.
Today, we’re used to remote everything (work, health care, staffing, freelancing) without compromising productivity. We’ve also seen a rise in volatility — food shortages, energy transitions, security issues — and the Chicago Board Options Exchange‘s CBOE Volatility Index, which measures general market sentiment, is now trading 25% higher, signaling an increased level of overall risk in the market.
Lastly, we can’t ignore inflation — the cost of goods rising, incomes shrinking and layoffs will make investing a challenge.
A 2023 recession: The top eight investment sectors
Factoring in macro changes, here are the sectors likely to thrive. While not an exhaustive list, it highlights key resilience characteristics: Being mission critical, enhanced productivity with limited resources, and a general flight to quality.
- Digital health: People need health care, even when incomes decline. But recessions still hurt companies with more debt or capital expenditure/operating expense costs and less cash flow. Health care companies that will do well are those that add productivity to existing infrastructure and allow for robust patient monitoring and tracking (doing more with less).
- Discounted/used goods, consumer staples and the circular economy: Dollar General outperformed all 2008 stocks, rising more than 60%. Recessions induce layoffs and reduce income, leading to households buying less or cheaper. Expect discount retailers, used goods and asset-light, customer-obsessed marketplaces and distributors of “must-have” recommerce, or previously owned products, to win.
- Budget travel and leisure: With energy costs soaring, travel is becoming prohibitively expensive. Expect a shift to local activities — hence the surge in Airbnb Experience bookings and new hosts. Bet on companies involved with the infrastructure, enabling local travel and experiences.
- Logistics: Never fully recovered from 2020, the entire supply chain remains under stress. We see particular potential around productivity — including mapping tools, route planning, resource management and seamless APIs for connectivity.
- Personal services: Two themes — (1) accounting and tax services will remain an annuity and (2) mass layoffs will lead to a rise of new company formations and freelance workers. Companies addressing the freelance workflow from finding the next gig to invoicing and getting paid should thrive.
- Critical stack SaaS only: Only SaaS with easy to measure ROI attributed back to cost dollars is safe. Remember the three Cs: if a company doesn’t help manage costs; if it’s not mission critical, and if it doesn’t help maintain control of businesses, it may experience headwinds.
- The energy reset: We’re in the midst of a global energy transition away from fossil fuels and toward decarbonization. Two areas in focus are making energy management more efficient and grid digitalization to prepare for the transition and balance multiple sources (wind and solar).
- Remote everything: 2020 permanently changed the future of work leading to more companies hiring remote teams in lower-cost-base markets to maintain productivity and increase profitability. Companies that help identify, hire, onboard, pay, handle taxes or train remote staff will likely benefit.
Parting thoughts: Buckle up, it’ll be a bumpy ride
While there are several other promising trends in the infancy stage, these eight key sectors will likely thrive through a recession, representing the bulk of digital transformation in the next 24 months.
Rajive Keshup is an investment director at Cathay Innovation, based out of the Singapore office. Prior to joining Cathay, Keshup played instrumental roles in scaling a number of Southeast Asian startups. Before moving to Singapore, he was a managing director at PwC Strategy (formerly Booz & Co.) in New York City where he led the TMT sector for the firm’s private equity practice.
Illustration: Dom Guzman
Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.