Bellevue Emerging Markets Healthcare (Lux)

Recent company earnings announcements have indicated quite clearly that growth momentum is about to 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. Emerging market healthcare stocks were unable to escape the general trend either and likewise retreated about 8%.

Hikma Pharmaceuticals published its latest results at the end of April. Its generics business in the US got off to a slow start in 2022 due to stiffer competition and a challenging pricing environment, but Hikma’s management nevertheless raised its outlook for the current fiscal year thanks to the completion of the Custopharm acquisition. What's more, the Jordanian company projected slightly higher sales growth from its Injectables division. Despite the solid news flow, Hikma's shares came under selling pressure on the day of the announcement.

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 is aiming to double this capacity by the end of 2023. 

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.

Orient Gene Biotech was added to the fund's portfolio during the past month. Shareholdings of Gland Pharma, Sinopharm and Innocare were increased. Positions in Remegen, Kingmed, Hapvida, Zhifei and Osstem were closed, and the fund's shareholdings of Wuxi Apptec, Tigermed and Pharmaron were reduced.

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.