If you’re a regular visitor to Shanghai or Singapore, you’re likely to have noticed the growing number of joggers on the streets. They reflect a broader Asian lifestyle trend with big potential for investors, and the key to tapping it lies in the region’s smaller companies.

Tianji is 25 and lives in Shanghai, China. When we visited him, he complained that he hadn’t been to the gym for four months because he’d been too busy planning for his wedding. He earns only RMB¬¥5,000 (US$750) a month, but he made it clear that it was lack of time rather than money that prevented him from attending the gym as often as he would like.

In Guanghan, a lower-tier city in Sichuan province, Jingyong, 30, told us he’d bought a treadmill online because he thought he was putting on weight and developing a beer belly.

Growing Interest in Staying Healthy

These examples highlight the increasing interest in exercise and staying healthy among China’s consumers. And the trend is not confined to China: with rising incomes across many Asian markets, consumers are now spending more on services and lifestyle experiences. As people get wealthier, they also want quality, to stay healthy and feel and look good.

[drizzle]Global brands are benefiting from some of these trends. According to Euromonitor International, the combined market share of sportswear manufacturers Nike and Adidas in China rose from 19% in 2011 to 28% in 2015.

Smaller Companies Understand Local Needs

Smaller-capitalization companies in the region are also winning big from the trend, helped by their niche focus, strong home base and keen understanding of local market needs. They’re particularly attractive from an investment point of view, as they often do not register on the radar screens of international investors who, in emerging markets, tend to focus on larger-cap stocks.

It’s not just gyms, fitness equipment makers and sportswear companies that are profiting: for investors, the opportunity is much broader.

Between 2000 and 2015, according to Euromonitor International, food and autos were among the fastest-growing areas of consumer spending in Asian emerging markets, along with healthcare (Display). We estimate that during the next 15 years, the growth in consumer services will match the growth in healthcare spending and exceed the growth in food and autos.

Within consumer services, some of the areas of fastest growth in 2015–2030 will be recreation, healthcare and accommodation (Display). In health and personal care (HPC), cosmetics are among the top categories.

Asia, for example, demand for South Korean cosmetics among younger women (and, increasingly, men) is growing strongly. New brands and products are constantly coming to the market, competition is fierce and brand loyalty is low. We find it’s important to take a ground-level perspective on the companies that are most likely to succeed.

From Cosmetics to Entertainment

Cosmax is a good example. The small-cap South Korean cosmetics researcher, designer and manufacturer is a leading original design and equipment manufacturer in South Korea. Since it provides many global cosmetic brands access to South Korean innovation in beauty products, Cosmax is exposed to fewer risks related to brand loyalty and competition.

Health and nutrition are increasingly top of mind for Asian emerging consumers. In China alone this category grew 15.1% year over year last year. Several smaller companies, such as Nutribiotech (South Korea) and Grape King Bio (Taiwan), are focusing on the growing demand for food supplements and nutrition. Healthcare is expected to be one of the fastest-growing categories in the next 15 years. Consumers want higher-quality care, and it is no coincidence that some of the best smaller-cap hospital operators are expanding around the region to tap this opportunity.

Consumers also increasingly want more affordable entertainment. IMAX box-office ticket sales grew 50% last year in China. Given the low penetration of mega screens in China, the trend is in its early stages. Korean company LOEN Entertainment, a provider of affordable online music, is well placed in this market, as it provides access to the largest selection of Korean pop music among its peers—“K-pop” being the music of choice for many hundreds of millions of Asians.

According to global strategy consultant Roland Berger, 30 emerging-market households join the global middle class every minute, and the phenomenon has many years to run. Larger-cap companies can only tap a small portion of this exciting opportunity. By expanding a portfolio’s horizons to include smaller-caps, investors can find less-known companies that are poised for powerful growth as millions of people across Asia redefine the way they live their lives.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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