The booming Asian healthcare market


Bellevue Asset Management AG / Key word(s): market report
Bellevue Asset Management AG: the booming healthcare market in Asia
18.08.2022 / 14:00

Market Commentary August 18, 2022

The booming Asian healthcare market

Healthcare stocks in Asia have not been immune to the recent market turmoil. This sell-off, coupled with continued topline growth, has brought valuations down to historic lows and created very attractive entry points for investors.

Oliver Kubli, Portfolio Manager, Bellevue Asia Pacific Healthcare Fund, Bellevue Asset Management

The healthcare market in emerging Asian economies is a giant growth market. The region has 60% of the world’s population. There are over 3 billion people in China, India and Indonesia alone. Meanwhile, the middle class continues to grow relative to the total population. This means an increase in purchasing power and a significantly higher demand for goods and services from consumer and leisure-related industries and, of course, from the healthcare industry as well.

An additional development underway in the health sector deserves special mention: Asian populations are also aging steadily. In about a generation, around 2050, about one billion people in the region will be over 60, and about half of them will be in China alone.

Major reforms in the health sector in Asia

In this context, access to high-quality health products and services that ordinary citizens can afford is essential. Government policy will, of course, shape the future development and modernization of national health systems. Emerging Asian countries have been particularly active in pursuing far-reaching health care reforms to meet the surge in demand.

The sector’s growth forecasts are therefore attractive. We expect the healthcare sector in emerging Asian markets to grow twice as fast as the respective gross domestic products over the next few years.

Overcorrection in China

As for China, Beijing announced one of its first major healthcare reforms in 2015 when it introduced mandatory bioequivalence testing for generics, among other measures. Three years later, the first government tenders and centralized procurement processes for generics were introduced. Such action was initially greeted with uncertainty by investors. For patients, however, it has improved the quality, access and affordability of health goods and services.

The recent correction, and not just in the healthcare sector but in the Chinese stock market as a whole, can be attributed to a mix of foreign policy tensions (US-China clashes), ​the war in Ukraine and Chinese public policy decisions. These include a strict zero-COVID policy that has raised some eyebrows and a sweeping regulatory crackdown on tech companies, among others.

What is often overlooked with these issues is that, unlike most Western countries, inflation is not a concern in China and its government is therefore better placed to support the economy through monetary policies. and accommodating taxes. What is particularly important in health is that government action is resolutely focused on modernizing the entire system, at all levels of the value chain. Supporting research and development activities is absolutely vital to meet the medium and long term huge demand for locally developed products and services.

Legend Biotech is a remarkable example of the progress made by the Chinese healthcare industry. Together with his partner Johnson & Johnson, he presented efficacy data from a personalized cell therapy trial in patients with multiple myeloma, the second most common type of blood cancer, which belongs to a class at go. The cell therapy was approved by the US FDA at the end of February 2022.

Despite sometimes brutal market sell-offs, Chinese healthcare stocks have outperformed the US stock market by more than 1,000% over the past 18 years.

Allocation to Chinese names increased

Around 40% of Bellevue Asia Pacific Healthcare Fund (ISIN B-USD LU1587984847) is currently invested in China. Its allocation to China has been steadily increased over the past few weeks on the back of very attractive valuations, encouraging discussions with several company executives and the easing of the lockdown in Shanghai. The outlook on the pandemic front has also improved markedly.

The fund’s weighting in Japan is also around 40%, with a focus on globally active companies that are world leaders in their target markets and have impressive innovation capabilities. Examples here are the pharmaceutical companies Daiichi Sankyo and Takeda or the medical technology companies Olympus and Terumo. The portfolio is completed by a selection of Indian, Korean, Australian and Thai stocks. Half of the portfolio is therefore ideal for investing in emerging Asian countries which are making great strides in modernizing their healthcare system and the other half offers access to highly innovative healthcare players in developed countries in the region.

Asian healthcare companies continued to post very strong quarterly results, even during the recent sell-off, so valuations fell to very attractive levels, especially for Chinese stocks. The average PEG ratio of the fund’s Chinese investments, which is based on medium-term EPS estimates, is currently 0.8, which is lower than it has ever been since the fund’s inception. This corresponds to a discount of just over 20% compared to the historical average. The portfolio’s overall PEG ratio is 1.4. The estimated average sales growth of all portfolio companies for the coming years is also very attractive at 24.1% per year.

The historically low valuation combined with still intact revenue growth offers investors with a medium to long-term investment horizon extremely attractive entry points.

Oliver Kubli has been Managing Director, Head Portfolio Management Healthcare Funds & Mandates since 2015. Previously, he worked as Senior Portfolio Manager at Zürcher Kantonalbank and was a Member of Management and Head Portfolio Management at Adamant Biomedical Investment AG. He completed his studies in business management at the Zurich University of Applied Sciences in Winterthur and holds the CFA title.

Bellevue Asset Management AG, Seestrasse 16 / PO Box, CH-8700 Küsnacht/Zurich,
Tanja Chicherio, tel. +41 44 267 67 09, [email protected]

Bellevue – Excellence in specialized investments
Bellevue is a specialist asset manager listed on the SIX Swiss Exchange with core competencies covering healthcare strategies, entrepreneur strategies, alternative and traditional investment strategies. Founded in 1993, Bellevue, a House of Investment Ideas made up of 100 professionals, generates attractive returns on investment and creates added value for clients and shareholders. Bellevue managed assets of 9.6 billion francs as of June 31, 2022.

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