In a recent research update – Investing in the emerging consumers – Frontier Advisors said as consumers become wealthier their consumption patterns change, resulting in the creation of investment opportunities in sectors exposed to the trend.
From a thematic and top-down perspective, Frontier marked financials, health and leisure as the sectors most likely to benefit from the emerging consumer trend.
According to Frontier, increasing household income will result in a higher demand for investments and products.
“As economies develop, markets for more sophisticated financial services become more pervasive,” the update said.
Frontier said investors should look to access this trend through allocation to banks, brokers, insurance providers and technology-orientated financial services.
In terms of health, rising incomes will translate to better diet and increased life expectancy, and individuals will pursue healthier lifestyles.
“From an investment perspective, this theme can be accessed via hospital operators, pharmaceuticals, health supplements, sports/active-living apparel and other associated industries,” the update said.
Moreover, as consumers’ income increases so too does their priority for and time spent on leisure activities.
Frontier said investors can take advantage of this opportunity through investing in cinema operations, theme parks, travel agencies, hotels, airlines, infrastructure, mobile gaming companies, casinos, telecommunication companies and component manufacturers.
While the trend offers numerous opportunities, Frontier warned investors to consider valuations and competition when investing in emerging markets.
“Valuations in sectors with positive dynamics can become excessive from time to time in all markets.
“Rising competition and industry dynamics – the emerging consumer growth theme, particularly in Asia has drawn a lot of competition, such that profit margins of Asian consumer stocks have been in decline,” the update said.
Frontier also pointed out that social and political instability remains a key risk in emerging markets.
"These factors are considered to be a risk to society in general as they can trigger social unrest, revolution and ultimately retard aggregate economic growth."
