Consumer discretionary and pharmaceutical companies specifically offer prime opportunities for capital growth, the firm said.
China, for example, is laying the foundation for more sustainable long-term growth by cooling down an overheated property market, reining in unbridled lending, and curbing unprofitable infrastructure projects, Capital Group said.
“Rising living standards alter consumption patterns [and are] driving demand for higher value goods and services.”
The ageing population in China and other emerging markets is another driver.
“The initial beneficiaries of this ageing trend were the large-cap global pharmaceutical companies,” said Noriko Chen, portfolio manager.
“But we are now moving into the second stage, where people have even more disposable income and are willing to pay for services like private healthcare and diagnostics. Service providers, particularly hospital operators listed in Asia, have very positive tailwinds.
“I would be much more willing to buy a Chinese healthcare–related or services company rather than a luxury brand,” Chen said.
Shift in dividend culture
Management views on paying dividends also appear to be changing, and investors are starting to view emerging markets not just for growth but for income as well.
“There is a growing appreciation among managements of emerging market companies that dividends do not send a bad signal to markets, and in many cases they send a very positive message,” said Chapman Taylor, portfolio manager.
The average dividend yield of the MSCI Emerging Markets Index was 2.95% on 31 December and around one-third of emerging market stocks had a dividend yield greater than 3%.