Bellevue Emerging Markets Healthcare

Emerging markets in Asia delivered strong gains in June, with the Hang Seng rising 4.0%, the CSI 300 increasing 3.8%, the Nifty 50 advancing 2.9%, and the Kospi surging +6.4%. Brazil’s benchmark index, the Ibovespa, also posted a positive performance, climbing 6.5%. Consequently, the broader emerging markets equity market (MXEF Index) closed the month on a positive note, gaining 5.7%.

The emerging markets healthcare equity sector (+4.1%) underperformed the broader market. Negative rhetoric from the US government regarding its Most Favoured Nation (MFN) pricing model and the prospect of tariffs on biopharma products weighed on pharmaceutical and biotech stocks, while hospital names offered little support. The Bellevue Emerging Markets Healthcare Fund (+4.7%) outperformed its benchmark during that period.

Innovent (+26.4%), Legend (+22.6%), Sino Biopharm (+19.0%), Hansoh (+15.0%), and Max Healthcare (+13.2%) were among the top contributors to the fund’s absolute performance. Innovent attracted a new wave of interest as the company presented encouraging data from its clinical asset – IBI363, a PD1/IL2alpha bispecific for solid cancers including lung cancer, colorectal cancer and melanoma. Strong efficacy and a manageable safety profile added to investor confidence for IBI363’s path to success. Legend regained momentum because new data suggests Carvykti’s differentiation and competitive advantage in multiple myeloma. FDA’s signal of openness to cell and gene therapy also helped. Sino Biopharm jumped on the rumour that its first landmark out-licensing deal was finalising. Although no more details released, we think there are 2-3 solid assets in its pipeline that hold high out-licensing potential. Hansoh has a solid innovative pipeline and rose on its potential for out-licensing. In addition, Hansoh’s aumolertinib, a third-generation EGFR (epidermal growth factor receptor) targeting drug for non-small cell lung cancer (NSCLC) got approval by the UK, adding to its sales potential. Max Healthcare climbed for no particular reason, but the underlying solid business, management execution and weakness seen in Thai hospitals may have contributed to the stock's gain.     
Hengrui (-4.7%), CSPC (-3.9%), Bangkok Dusit (-2.1%), BeOne (-1.9%), and Samsung Biologics (-1.8%) were the largest detractors from the fund’s absolute performance. Hengrui corrected as investor interest in China healthcare started to spill into smaller and less known biotech stocks. CSPC investors took profits after the stock soaring on announcements of potential out-licensing deals. Bangkok Dusit declined because its major competitor – Bumrungrad – will build a hospital in Phuket, the area used to be dominated by Bangkok Dusit. BeOne slipped despite positive pipeline updates because some brokers increased short positions in the stock. Similar to CSPC, Samsung Biologics also pulled back slightly after a recent mark-up on new contract announcements.

All performance figures in USD, with fund performance based on the B share (USD). 

Emerging markets include the world's most dynamic growth countries, home to more than half of the world's population. By 2050, the Asian emerging economies are also expected to account for more than 50% of global economic output. Economies with rising incomes are shifting their growth model away from the industrial sector and toward the service sector. With the growing middle class, demand for modern medicine is increasing. Health is increasingly high on people's wish lists. Billions of dollars in investments in infrastructure, new technologies, and research are driving the modernization of the healthcare system. This gives people broader access to better healthcare. Demand is also rising due to a rapidly advancing aging population. In China alone, in 30 years, there will be 400 to 500 million people over the age of 60, who will increasingly require modern healthcare services and medications. 

In addition to Asia, attractive investment opportunities are increasingly opening up for beneficiaries of Brazil's rapidly growing private healthcare market. Since the public healthcare system in Brazil is no longer acceptable in terms of quality and waiting times for many well-off Brazilians, they are increasingly turning to the private sector for new services. Hospital chains in their own vertically integrated ecosystem are just one example of the beneficiaries of this sustainable development.

The fund offers defensive access to the above-average growth of emerging markets. We invest in the entire healthcare value chain, from hospital chains, drug and device manufacturers, and research to digital health companies.