A global fund manager has identified emerging markets as regions offering very good return opportunities when looking at a longer-term investment horizon driven by consumer demand.
“There are a number of emerging markets where the middle class is sufficiently large so that it’s becoming an economic force on its own,” JP Morgan macro strategies team portfolio manager Virginia Martin Heriz noted.
Martin Heriz used the experience of India to illustrate this point, where in 1995 the middle class made up 1 per cent of the country’s population, but is predicted to represent close to 80 per cent of it by 2030, and show how this trend can translate into investment opportunities.
“Its middle class has specific preferences so if we can identify companies that cater for those preferences, we will be identifying companies with the potential to outgrow the broader economy,” she noted.
To this end, the manager has recognised companies operating in the financial sector as those that will benefit from this demographic shift.
“[That involves] property insurance to protect belongings, life insurance to provide [financial] protection and manage savings, and credit to fund home purchase, et cetera,” Martin Heriz said.
“Indeed what we see is at certain levels of GDP (gross domestic product) per capita, the penetration of financial services accelerates so that revenues in this sector can outgrow the broader economy.”
According to Martin Heriz, the companies in line to benefit from the rising middle class in India do not stop at financial services.
“The middle class also drives demand for consumer products and better healthcare and this drives investment opportunities in those sectors too,” she said.
Apart from emerging markets, JP Morgan has forecast climate change response and widespread technology adoption as other long-term themes producing the best investment opportunities.
With regard to shorter-term or cyclical investment opportunities, the manager believes companies that can take advantage of decelerating market growth will offer the best returns.
These include organisations participating in the healthcare or consumer staples spaces.''