Notes from the Field: Spring 2018 | Capital Group

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Notes from the Field: Spring 2018

Observations from Capital Group Analysts Around the World.

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The tutoring industry in China is fragmented but growing quickly, allowing leading companies to gain market share.

About 80 million children in China receive after-school tutoring. The top two companies have fewer than 2 million students combined and are expanding aggressively with the help of advanced technology, such as facial-recognition software that identifies students who may be confused and need additional help. The leading companies have pricing power and are raising tuition about 6% to 7% a year.
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Growing demand for electric vehicles could benefit components manufacturers specializing in automotive technology.

Thanks partly to technological progress, electric vehicles are expected to become price competitive with traditional internal combustion engines in the next five to eight years. As automakers increasingly focus on this market, there is likely to be heavy demand for suppliers of EV technology.
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Competitive video gaming is surging in popularity and may one day top U.S. professional football in revenue and profitability.

So-called eSports are multiperson video games that are often played by professionals in front of live or online audiences. Although eSports make up a small segment of the gaming business, there is enormous potential for advertising, ticket sales and broadcasting rights. International growth prospects are particularly strong.
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Wage growth is accelerating as the U.S. economy adds jobs, but rising pay is unlikely to squeeze corporate profits.

Though wage gains have been modest compared with previous economic expansions, pay is climbing as the employment picture brightens. Even so, wage hikes are unlikely to dent profit margins, as compensation costs are quite low as a share of revenue.
 
 
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China’s efforts to improve health care is spurring a rapid expansion of the country’s pharmaceutical market.

Chinese health care spending is rising as much as 15% a year, with medical outlays expected to hit 7% of GDP by 2020. The government hopes to spur medical innovation by speeding up drug approvals and extending patent protections. 
 
 
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Europe’s economic resurgence is particularly notable in Portugal, which has reduced its budget deficit, shored up its banking system and boosted exports.

The economy is also benefiting from a higher-quality workforce after yearslong upgrade of its education system. And compared with the stresses afflicting some of its European neighbors, Portugal has a relative absence of immigration pressures.