Bellevue Emerging Markets Healthcare

The long-expected Fed pivot is now reality – the US central bank lowered its benchmark interest rate on September 18. This was its first rate cut since the start of the coronavirus pandemic in 2020 and it was an unusually large move of half a percentage point that came as a bit of a surprise. Before the pivot the general consensus was that Fed Chair Jerome Powell would announce a small quarter-point cut. He explained that the oversized reduction was justified by pockets of weakness in the jobs market and the steady decline in inflation. The forthcoming readouts on economic activity and inflation will determine where the US stock market goes from here. Any data points that raise doubts about the so-called soft-landing scenario will most likely drag Wall Street lower. The MSCI World gained almost 2% in USD last month, whereas the global healthcare sector retreated almost 3%, which can mainly be blamed on profit-taking in sector heavyweights Ely Lilly and Novo Nordisk. Asian stocks showed significantly better gains. The MSCI Emerging Markets Index and the MSCI Asia Pacific Index both advanced more than 5%. Health stocks in the emerging market space climbed even higher, closing the month with a gain of more than 7%. These strong gains can be traced to the sweeping economic stimulus package that Beijing unveiled during the month under review.
 
In contrast to earlier government attempts to shore up Chinese capital markets and stabilize the economy, this time China’s leaders have crafted a broad stimulus package that includes monetary and fiscal policy measures that should provide some relief for households in particular. This is intended to lift household consumption and ease deflationary pressure. It appears that the Communist Party leadership has finally acknowledged that the situation is dramatic and that it must use every means at its disposal to fix it. President Xi Jinping recently spoke about the new policy stance in surprisingly frank terms. This represents a paradigm shift and could help to improve foreign investors’ confidence in China's capital markets. Besides lowering borrowing rates and providing relief for homeowners as well as support for the equity market, the package includes the equivalent of almost USD 450 bn for Chinese households. These measures range from tax cuts and government subsidies for household purchases of new cars and appliances to more generous unemployment benefits and cash handouts for young families and low-income households. The government forecasts that its fiscal deficit will rise above 3% of GDP as a result of the stimulus spending. 

Chinese biotech company Akeso published groundbreaking Phase III data from its Chinese trial of ivonescimab, a bispecific antibody, in lung cancer patients. In a head-to-head comparison with Keytruda, the current standard of care, progression-free survival was more than 11 months compared to 5.8 months for Keytruda. This data has increased the likelihood that the international study being conducted by Akeso's partner Summit Therapeutics will also show a superior outcome. The fund is invested in both of these companies.

Last month existing fund positions in Akeso, Bangkok Dusit and Bumrungrad were increased and a new position in IPCA was opened. Positions in Summit, Dr. Reddy's, Divis and Aurobindo were reduced. Aier Eye Hospitals was removed from the portfolio.

The fastest growing countries in the world can be found in emerging markets and they contain more than half of the world's population. Asian emerging markets are also forecast to account for more than 50% of global GDP by 2050. It is known that the economic growth model of countries shifts from manufacturing to the services sector as household incomes rise. A growing middle class fuels demand for modern medicine. Healthcare ranks increasingly high on their wish list. Billions are being invested in infrastructure, technology and research to modernize the healthcare systems in emerging market countries. This is giving a greater swath of the population access to better healthcare. Meanwhile rapid population aging is also stoking demand for healthcare. In 30 years’ time there will be 400 to 500 million people over 60 in China alone, and they will have a growing need for modern health services and medicines. Outside Asia, Brazil’s rapidly expanding private-sector healthcare market offers a range of interesting investment opportunities. The quality and long waiting times of the country’s public health system are no longer acceptable to many higher-income Brazilian households and they are increasingly embracing these new services offered by private-sector healthcare providers. Hospital chains embedded in a fully-integrated ecosystem are but one example of the beneficiaries of this structural change. The fund serves as a defensive vehicle for capturing the above-average growth potential emerging markets offer. It invests in the entire healthcare system value chain, from hospital chains, drug developers and device manufacturers to medical research specialists and digital health companies.