Fintech,healthcare,luxury goods sectors poised for strong growth

Raj Shant April 04, 2023 06:00

If we look at the current geopolitical situation, it is hard for any company to be truly global due to the different sectors in different markets. Under the existing regulatory environment there is a greater degree of uncertainty than there was five years ago, making it more difficult for us to identify where the opportunities and growth will come from. We believe that in every environment there are some great growth opportunities, and for a company to become one that grows more than the market and the economy, it needs to be doing something different and special, and these are the areas where we find strong secular growth.

Fintech

Fintech is one area where we see growth. More mature markets like Hong Kong, the UK and the US have an abundance of fintech companies that have been “the next big thing” for a long time, but they are generally not breaking out.

What makes fintech successful is the nature of the competition in the target market. The big, well-established incumbent banks in many EM have often not invested as much as they should in their websites and mobile apps. In the emerging markets, whenever we can find banks that have underinvested in such technology, making their websites and apps relatively expensive to operate and inconvenient to use we know there is a potentially lucrative opportunity for fintech challengers. So, there is a large potential profit pool that the new, cheaper, more efficient, more convenient, and faster company can exploit.

Healthcare

Exciting opportunities also exist in the healthcare sector as well, but not with the large mainstream pharmaceutical companies because many of those do not grow particularly fast. Instead, there are new areas of science and technology which are opening up new forms of treatment and new cycles of growth.

The key is to find underappreciated areas of growth. Take diabetes as an example – there are various treatments that have existed for a long time. However, obesity is an accompanying, globally rising problem. Some of these diabetes treatment companies have, in the course of their research, discovered novel ways to tackle obesity simultaneously, which is much less well understood and appreciated by the market. We think the opportunities in this field will be greater in magnitude and duration than investors realize.

Luxury goods

Some investors were negative about the luxury goods sector due to the pandemic-induced disruption to international travel over the past few years. However, despite that, luxury goods companies have continued to show solid growth.

Fundamentally, for a luxury goods company that has a strong brand rich in heritage, cachet and exclusivity, the key to managing that brand over the years is controlling supply, making sure it stays less than demand. Even now, with international travel ramping up again, instead of flooding the market with their products, every market should be left wanting a bit more. We also often find that the marginal buyers of luxury goods are younger consumers in their late twenties to early thirties who have started making good money for the first time and are buying it as an aspirational product. There is also an element of the next generation – environmentally conscious consumers who want to have fewer possessions, but of a higher quality. So, in terms of that segment of the economy, we see continued strong long-term structural growth.

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Raj Shant

Managing Director and Portfolio Specialist at Jennison Associates, a PGIM Business