Emerging market equities have seen strong demand recently as investors look overseas for assets trading at attractive valuations with long runways for growth.
The rise of Asia’s middle class, Asia, increasing discretionary spending and a greater demand for developed market products such as life insurance, high-value healthcare and asset management products are just a few of the themes attracting investor cash.
China’s healthcare market is perhaps one of the most attractive markets in the world for investors.
Healthcare in China is still relatively underdeveloped compared to developed world nations such as France, Australia, the UK and the US. The country’s increasing the wealth, booming population growth and rapidly expanding medical expenditure make it the perfect market for international investment.
Also see China’s Demographic Future
China’s healthcare market
According to a World Bank study, medical spending in China is growing at 8.4% per annum, but the country’s healthcare system is in bad need of reform. China’s hospital system is badly strained as it has failed to adapt to the new China and is still geared to country’s planned economy model which crumbled in the 1990s. Doctors and modern medical equipment are concentrated in big city hospitals, fuelling overcrowding, long waiting times and lightning fast consultations at the hospitals where the best facilities are located.
However, China is now committed to reform. In 2015 the government introduced a five-year plan for the healthcare sector, designed to eliminate bottlenecks, tackle changing demographic trends and improve the low quality of medical services.
These reforms focused on a few fundamental changes to the healthcare system. Policymakers want to modify the system away from a quantity-driven organization to a quality service. Improvement plans include increasing the number of private hospitals, decreasing state hospitals’ reliance on drug sales as a revenue source, reducing patients’ out-of-pocket expenses by extending medical insurance coverage and stimulating innovative drug development.
Analysts at BCA Research believe that these reforms present a turning point for China’s healthcare sector. The reforms could accelerate the growth of private healthcare firms – giving investors a great opportunity to profit from the industry’s changes.
Over the past 20 years, the number of deaths associated with chronic diseases has nearly doubled. A longer average life expectancy, switch to unhealthy Western diets, higher pollution, and smoking are all reasons given for this increase. Despite this spike in deaths and the country’s growing wealth, China’s healthcare spending per capita is still less than $1,000 compared to spending per capita of more than $5,000 in Germany and more than $9,000 in the USA.
Put simply, China’s healthcare spending has plenty of room to grow and government reform of the sector over the next five years should unlock this growth. BCA likes CSPC Pharmaceuticals Group (1093 HK), 3SBio (1530 HK), and China Medical System (867 HK) for pharma; Phoenix Health (1515 HK) for hospital exposure; and Ping An (2318 HK) for life and healthcare insurance exposure.