Bellevue Asia Pacific 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 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. Asia-Pacific equities ended the month about 1% lower and healthcare stocks in the region closed 2.3% lower.

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.

Chinese digital healthcare services provider JD Health reported a convincing set of half-year results. Sales 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.

Japanese biopharmaceutical company Daiichi Sankyo issued several positive news announcements in August. In the US, Enhertu, a groundbreaking treatment for breast cancer patients, was approved for patients whose tumors do not overexpress the HER2 protein (HER2-low) only two weeks after the application was submitted. In addition, Daiichi Sankyo won its patent dispute with Seagen, which helped its shares tack on more gains.

Eisai was added to the fund’s portfolio as a new position last month and existing positions in M3, Celltrion, Takeda, JD Health and Olympus were increased. JCR Pharma, Pharmaron and Fosun Pharma were removed from the portfolio and shareholdings of Astellas, Ono Pharma and Otsuka were reduced.

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.