Capturing medtech opportunities as virtual healthcare gains momentum
Consider the investing potential in healthcare innovation
The global economic recovery is continuing and North Asia has emerged as a key focus for some investors seeking growth. China, with economic growth projected at 2% in 2020 and 7.9% in 20212, takes the spotlight with relatively attractive long-term investment themes in its equity markets.
Growing domestic demand, import substitution and technological advances are likely the key considerations for investors seeking to optimise China’s potential in their growth portfolio. We share our views on some investible themes for 2021 in China’s equity markets.
3 investible themes in China’s market1
The global public health crisis has accelerated some structural trends in China, including domestic technological development, healthcare innovation and consumption upgrade. Such long-term trends are likely to take hold as recovery broadens in domestic demand. Additionally, the Chinese government is also continuing to promote coordinated pro-growth policies while deepening reform measures that support these trends.
1. Tech in everyday life1
Tech has gone beyond smart phones and eCommerce in China. Artificial intelligence and cloud computing are becoming a part of everyday life. Amid geopolitical uncertainty and facing a decoupling risk with the US, China’s tech industry is embracing an inward economic pivot, and looking to make breakthroughs in core technologies to reduce its reliance on imported software and hardware.
The trend towards digitalisation has accelerated the commercial- and home-use of software. Cybersecurity, for example, currently accounts for a relatively small portion of Chinese corporate spending, but could gradually take up a larger share in the overall tech spend.
China is building a domestic tech industry, particularly in semiconductors where previously, it had primarily been an importer. In addition, the deployment of 5G has also driven market demand for semiconductors.
Clean energy application:
China is moving towards greater consumption of cleaner energy, and has become a leader in the use and manufacture of electric vehicles and solar energy equipment. Electric vehicle sales are expected to grow further on the back of supportive government policies, and increasing demand for environmental-friendly vehicles.
2. Longer-term healthcare demand1
One of the structural changes arising from the crisis is increased demand for healthcare services and products, including healthcare infrastructure, preventive treatment and vaccine development. China’s healthcare industry covers a considerable number of sectors, and spending on such services could continue to grow. We believe three macro trends are relatively attractive:
Research & development (R&D) outsourcing:
Contract research and contract manufacturing organisations could benefit from rising demand for R&D outsourcing globally.
Medical equipment manufacturing:
Another trend accelerated by the global health crisis is increased spending on quality medical services and products, especially by the growing middle class in China. Against this backdrop, this could benefit hospitals and medical equipment suppliers.
Innovative pharmaceuticals and diagnostics-related corporates could also benefit from China’s long-term investment in R&D. The return of Chinese talent from overseas is helping to fuel innovation in pharmaceutical R&D, alongside the creation of more pharma companies. This could boost scientific R&D in the domestic market.
3. Better living standards and ‘premiumisation’1
As household income increases and the standard of living improves in China, its middle class is increasingly focused on lifestyle upgrades in both daily necessities and entertainment. Alongside supportive domestic policies, consumption is expected to become a key driver of economic growth.
Wealth accumulation and the resulting lifestyle upgrades and greater demand for quality products and services have created a constructive backdrop for industry leaders in consumer staples such as dairy products, snacks and condiments. China’s consumption ‘premiumisation’ is gradually driving growth.
Chinese consumers across generations are increasingly shifting to online entertainment services, aided by higher adoption of broadband services. Wireless, or accessing the internet through mobile devices, is also gaining traction. We believe demand for ‘live’ streaming and online entertainment platforms could grow rapidly.
Changing mobility patterns globally have driven increased interest in travel within China. Cross-provincial tourism is regaining momentum, and this could bolster offline consumption, benefitting the tourism-related industries. This emerging trend, alongside Hainan Island’s plan to turn into a free trade port by more than tripling its duty-free allowance, is driving overall consumption demand.
Capturing robust opportunities in Chinese equities with a professional team
China has entered a new economic cycle with opportunities evolving from several long-term structural growth trends. China’s onshore equity markets offer a wider set of opportunities including more innovative ideas as compared with the offshore market. Nonetheless, this would also mean a prudent approach is needed to capture quality opportunities.
Leveraging our on-the-ground research which focuses on company fundamentals, our investment professionals integrate bottom-up stock selection with structural themes, seeking to capture opportunities with long-term growth potential.
Dedicated investment team