Bellevue Asia Pacific Healthcare (Lux)

Recent company earnings announcements have indicated quite clearly that growth will very likely weaken during the months ahead. That has been underscored by the very cautious guidance some companies have given. Input costs are rising on several fronts. Interest rates, commodity prices and labor costs continue to point upward. The tight US labor market suggests that wage costs will remain higher than generally expected. Persisting high inflation is also posing a headache for central bankers. Investors are already pricing in as many as 10 quarter-point rate hikes in the US for 2022. All these factors put stock markets around the world under considerable pressure in April. The MSCI World lost more than 8% in USD in April. Healthcare stocks in the Asia-Pacific region were not quite as weak, having ended the month with a negative return of about 5%.

Trading in South Korean medtech company Osstem Implants, which had been suspended since December 31, 2021, resumed on April 28, 2022. Its shares had been suspended pending an investigation into the alleged embezzlement of KRW 220 bn (USD 184 mn) by one of the company’s employees. Osstem managed to avoid being delisted, but there are still some basic questions regarding the company’s compliance policies and practices. It appears that the company’s system of checks and balances was inadequate. We consequently closed the position in this stock.

Shares of Hygeia Healthcare, an operator of hospitals focused on treating cancer patients, recovered strongly from their lows. Robust quarterly results and more positive sentiment towards this sector fueled this rebound. Reported sales were more than 65% higher yoy, while earnings soared 160% yoy. Hygeia reported both organic and inorganic growth. To meet steadily growing demand, Hygeia increased its capacity of licensed hospital beds by 87% to 5,000 beds and it is aiming to double this capacity by the end of 2023. 

Japanese drug maker Daiichi Sankyo reported a good set of annual results and gave an encouraging outlook for the coming fiscal year. The company’s growth is being fueled in particular by Enhertu, its drug for treating breast and gastric cancer. Detailed data from the ongoing Phase III trial of Destiny in patients with a low-level expression of HER2 will be presented at this year's ASCO. Management is hoping to receive regulatory approval for this indication during the second half of 2023, which would increase Enhertu's annual sales potential to more than USD 10 bn.

Positions in Metropolis, Mindray, Terumo and Otsuka were opened during the past month and existing positions in M3, Aier Eye Care and Legend Biotech were increased. Position in Osstem, Kingmed and Kyowa Kirin were closed and the position in CSPC Pharma was trimmed.

Asia is the most dynamic growth region in the world and it accounts for more than half of the world's population. Asian emerging markets are forecast to account for more than 50% of global GDP by 2050. As household incomes rise, the economic growth model of Asian countries will shift from manufacturing to the services sector. 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.

Japan, which has been referred to as “the world's demographic laboratory”, has championed cutting-edge innovation for decades. The Land of the Rising Sun boasts technology leadership in numerous fields, ranging from therapeutic antibody technology, immunotherapy and robotics to digitalization, diagnostics and medical imaging systems.

The fund offers defensive access to Asian emerging markets as well as exciting investment opportunities in technology leaders throughout the entire region. It invests in the entire healthcare system value chain, from generic drug producers and biotechnology companies to medical device manufacturers and digital health specialists.