Asia’s middle class could soar to 3.5 billion people in 2030 due to rising incomes, urbanisation and growing domestic consumption. This rapid expansion means Asia will be home to approximately two-thirds of the global middle class by the end of the decade*. But which companies stand to benefit most from this population explosion – and what investment funds have exposure to these businesses?
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Restaurants
Higher incomes equal greater demand for non-essential spending, and that’s good news for companies such as Yum China Holdings. China’s largest restaurant company has 18,000 outlets across six brands in more than 2,500 cities and towns across the country. It’s one of the largest holdings in the Fidelity Asia Pacific Opportunities fund**. Anthony Srom, its lead manager, takes a high-conviction approach to finding the best companies. However, he also looks to lower potential volatility by ensuring the portfolio is well-diversified across sectors as diverse as materials, health care and consumer discretionary.
Home improvements
The Asian home improvement market is already a multi-billion-dollar industry, but is tipped to enjoy rapid growth over the coming year. This could help Midea Group, a global technology company with a smart home unit that sells ovens, fridges, air conditioners, and other appliances. The stock is owned by the Schroder Asian Income fund***. We see this as a potential core holding for those wanting to access Asian income. Richard Sennitt, its lead manager, also owns Singapore Telecommunications***, which provides fibre broadband and a range of home appliances.
Financial services
Rising wealth creates demand for banking products, investment options and insurance and there’s no shortage of companies offering such financial services. Its importance is illustrated by the fact that it accounts for around a fifth of the Invesco Asian fund’s assets under management***. HDFC Bank, United Overseas Bank and AIA Group are among the largest positions*** chosen by the portfolio’s lead manager, William Lam. The focus is on companies where the market is underestimating earnings growth, with individual stocks chosen on a three-year investment horizon.
Technology
The technology sector is a significant driver of economic growth, with the region being home to some of the world’s most important names. These include Taiwan Semiconductor Manufacturing (TSMC). Its products are used in sub-sectors such as high-performance computing, smartphones and digital consumer electronics. The stock is currently the largest individual holding in Rasmus Nemmoe’s FSSA Global Emerging Markets Focus fund**, which seeks quality companies with long-term growth potential. The portfolio invests in 40-45 large and medium-sized companies in emerging markets, and has a strong environmental, social and governance ethos.
Video games
The video game market has long been tipped to enjoy substantial growth across Asia and the Middle East, with more than a billion active players. Tencent Holdings is a giant in the video game publishing arena. Its interests include owning Riot Games, the US-based developer behind smash hits such as League of Legends and VALORANT. It’s comfortably the largest holding in the FSSA All China fund***, whose managers invest in long-term, sustainable growth opportunities. The fund also invests in NetEase***, which develops and publishes mobile and PC games, as well as partnering with major international brands.
Automotive
The vehicle market is another one likely to benefit from an increase in middle-class consumers with more disposable income. This could help Mahindra & Mahindra, a leading Indian automotive manufacturer, whose range includes popular SUVs. The Goldman Sachs India Equity Portfolio, which aims to capture the growth potential of this country’s economy, has this business within its top holdings***. This fund’s management team, led by Aman Batra, believes that company meetings are a crucial part of the stock selection process, setting it apart from many rivals.
Global beneficiaries
There are also plenty of companies around the world set to cash in on the increasingly rich Asian consumer. Many of these will be held by global equity portfolios. One example is T. Rowe Price Global Focused Growth Equity. This fund invests in a diversified portfolio of global businesses with the potential for above-average, sustainable growth. Its largest holdings include component manufacturers NVIDIA and TSMC, tech giants Apple and Samsung Electronics, and Alphabet, the parent of Google***. The fund’s lead manager, David Eiswert, draws on the best ideas from expert analysts to create a global equity fund with the potential to deliver long-term returns across all market conditions.
