Bellevue Emerging Markets Healthcare (Lux)

Stock markets stayed in a cheery mood and tacked on some more gains until the middle of August. Positive earnings announcements, a consumer price inflation reading that came in below market expectations and, last but not least, hopes that central banks would put an early end to their monetary tightening were factors that pushed stocks higher. However, Jerome Powell's speech at the annual gathering of central bankers in Jackson Hole poured a big bucket of cold water on the positive sentiment. Powell stated quite clearly that the Fed would maintain a more restrictive monetary policy course for some time to come in order to bring inflation down to 2%. He also pointed out that the past experience served as a strong warning not to revert to a loose policy stance too early. His speech caused bond yields around the world to spike and put stock markets under pressure. The MSCI World Index returned a negative 4% in USD terms for the month and has fallen 17.5% since the beginning of the year. Meanwhile the MSCI Emerging Markets Index gained almost 0.5%, while healthcare stocks in the region ended August 2.7% lower.

Chinese digital healthcare services provider JD Health reported a convincing set of half-year results. Sales for the period increased nearly 50% year-on-year, beating market expectations. Management confirmed its forecast for the second half of the year, which was somewhat disappointing for investors. The high sales base in the previous year and uncertainties regarding consumer sentiment were the reasons given for not raising full-year guidance. We believe the rather cautious outlook leaves some room for positive surprises and have therefore slightly increased our position in JD Health.

Brazilian health insurer Hapvida resumed its organic growth during the second quarter of 2022. In net terms, it increased the number of its insured customers by 139000. This was a positive surprise after a long period of slack business during the pandemic. Hapvida's shares shot up more than 17% on the day of the announcement. Looking ahead, a crucial factor will be whether costs per customer can be brought under control again. The pandemic led to a significant increase in consultation volumes and had a corresponding negative impact on the latest quarterly results. We are confident that Hapvida will be able to get its costs under better control than its competitors going forward thanks to its vertically fully integrated model.

Thai hospital chain Bangkok Dusit Medical Services reported excellent quarterly results. Particularly pleasing was the news that company grew its core business (excluding COVID-19-related sales) by 28% year-on-year, bringing it close to pre-pandemic levels. Dusit management expects the recovery in business to continue during the second half of the year, driven by medical tourism in the wake of the economic reopening. 

Positions in Frontage and Fleury were added to the portfolio as next positions last month and existing positions in JD Health, Hapvida, Rede D’Or and Sun Pharmaceuticals were increased. Shanghai Fosun, Pharmaron, Hengrui and Ovctek were removed from the portfolio and shareholdings of Beigene and Wuxi Biologics were trimmed.

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.