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Aircon sector looks well positioned for growth as summer scorches


Although the temperature gauge has come down across the UK this week and last week’s 39 degrees seem to be in the rear view mirror, this is not the case across the rest of the Northern Hemisphere.

Summer heat is not letting up across large swathes of Europe and the US and both regions are bracing themselves for more extreme weather in August. Last year the US experienced its hottest summer on record, hotter even than the “Dust Bowl” years of the 1930s when droughts and heat turned the wheat fields of the US Plains into a barren patch of land and a sort of furnace.

Investing in the air conditioning sector

At the risk of stating the obvious, now may be the time to invest in air conditioning. And not just shares of companies that manufacture home air conditioning but also producers of industrial cooling systems and manufacturers of air conditioning for data centers, which are particularly temperature-sensitive beasts.

Shares in cooling, ventilation and air conditioning manufacturers have been on the rise over the last tw9tyoo months: Carrier Global (NYSE: CARR) is up by 10% since the start of July, Daikin Industries (TYO:6367), the Japanese multinational which owns one of the top US air conditioning producers Goodman Global, is up 18% since May, and French multinational Schneider Electric (Euronext Paris:SU) shares are up 15% on the month.

Among these firms Schneider is particularly interesting because it manufactures air conditioners, specifically used for perimeter cooling for mission critical applications. Temperatures in data centers have to be maintained within a range of a few degrees irrespective of what is happening to outside temperature and the cooling process is more delicate and slightly more complicated than in residential situations. Schneider shares are listed on Euronext in Paris and are trading in euros.

Even when this summer is over investing in air conditioning stocks will still have value. Over the course of this decade the size of the global air conditioning systems market is expected to rise at a rate of over 6% per year from a base of $107 billion in 2020 but the rate will vary from region to region.

Europe is playing catch up on aircon

In the US the saturation of air conditioning in homes is much higher than in Europe. According to the US Energy Information Administration in some states almost 100% of homes have air conditioning of some form. While European offices are generally well climate controlled Europeans are less wedded to owning air conditioning at home. But this is likely to change over the coming years if the summers continue to be as extreme as they are now. This year records are being broken across Europe for extremes and burnt land with fires ranging from Tenerife to Greece.

In Chinese cities, where extreme heat can make life and work difficult during the summer, the demand for air conditioning is rising faster than in other countries. As disposable income has grown over the last two decades Chinese people have moved from using relatively cheap fans in the summer to proper air conditioning units making this the fastest growing global market.

With no obvious indication that global summer temperatures are coming down anytime soon, the air conditioning sector looks well positioned for further growth.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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