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Investment Opportunities In The Asian Healthcare Market

July 7, 2011 by  

Investment Opportunities In The Asian Healthcare Market

Despite the outlook for U.S. and European economies being highly uncertain, the U.S. dollar and the euro remain the world’s dominant currencies. However, the importance of these two currencies is diminishing, which is not surprising given the huge debt problems in both markets. In order to hedge against a further devaluation of the two currencies, investors are increasingly looking beyond their own borders to find attractive investment opportunities. Currency diversification should be a key focus; that’s now obvious to everyone. But what should you do once the dollars or euro have been exchanged to Singapore dollars, Norwegian crowns or Swiss francs? While holding cash in those currencies certainly seems to be a short-term option, people need to find investment ideas where they can put their money to work in the long term.

It is admittedly a rather difficult task to find good investments today; this is especially true for equities. With the U.S. and Europe looking less attractive for the reasons mentioned above, investors naturally need to start looking at some emerging markets. There, they can still find good companies with excellent growth potential and attractive valuations. From a geographical point of view, it seems to make sense to diversify into emerging markets. But what industries are attractive in those markets? Selecting investments and looking for investment opportunities don’t get much easier if one compares different industries. For example, investing in banking stocks seems very unattractive in many markets given the fact that there is a global trend toward stricter banking regulations and requirements to hold higher capital reserves. Globally, regulators hope to make the world’s banking system more stable by requiring banks to hold more capital. From an investment point of view, this means that many of these companies will probably see a prolonged period of time with moderate or even disappointing profit growth.

In some of my previous articles, I have written extensively about some interesting markets and industries such as commodity- and agriculture-related investment opportunities. Today, I would like to make a strong investment case for Asian healthcare companies. I believe this is an industry with tremendous growth potential in the next decade (and most likely beyond that). However, few people are aware of the exciting opportunities there. And, yes, I know. Many people probably can’t hear the word “healthcare” anymore, because there has been too much negative noise about it in connection with the healthcare bill in the U.S. However, with Western countries struggling to control their rapidly increasing healthcare cost, the dynamics in the Asian healthcare market are very different. People in Asia have a fundamentally different relationship to healthcare. For many people, having access to good medical facilities is viewed as a prestige thing. This also explains why Asians spend so much money for lifestyle medicine and plastic surgeries. With fast-growing middle classes in many Asian countries, the demand for good, quality healthcare is rising very rapidly.

The global healthcare market consists of various subsectors that include pharmaceutical companies, hospital operators and biotech and medical technology companies, just to name a few. While growth rates in Western markets are slowing, the healthcare industry in Asia is growing at a rate of about 15 percent annually; some subsectors experience even higher growth rates. Healthcare penetration is still low in most Asian countries, and very few people have private health insurance. Also, healthcare infrastructure is well below Western levels. India, for example, has only 1.27 hospital beds per 1,000 people, that is less than half the global average of 2.6 and far away from the four beds per 1,000 people recommended by the World Health Organization. Demographic factors, as well as increased government and private-sector activity, will increase healthcare penetration. This will initiate a massive amount of investments in the sector. Again to take India as an example, it is expected that about $180 billion will be spent in the next five years on healthcare infrastructure alone.

There are enough positive domestic drivers that make the Asian healthcare market attractive. However, on top of the domestic factors, there is also increasing demand coming from other sources, such as medical tourism. With more and more people in the West struggling to afford medical costs, the incentive to look for treatment abroad is growing quickly. For example, a hip-replacement procedure costs between $25,000 and $40,000 in North America and Europe. The exact same procedure costs about $10,000 in places like Thailand or India. So for many people, this becomes a real option, maybe even the only option. Current data suggests the medical tourism market is growing at a rate of about 40 percent annually. This will add further momentum to an already booming market, and the underlying demographic trend suggests the Asian healthcare market will continue to grow at a rate of about 15 percent for at least another decade.

There are various ways investors can take an exposure to this promising market, but the most obvious way is to invest in Asian healthcare companies or Western companies with a high exposure to this booming market. In our view, it makes sense to select companies that have a diversified business model across several key markets in Asia. Given the fact that government’s role in regulating healthcare in each of these Asian countries is still very important, the political risk should not be underestimated. Also, investors should carefully review each company and its actual business. Here again, it is probably not ideal to select smaller companies with a very narrow focus on one small niche. This is often the problem with some of the medical-technology companies. Among our favorite investments are larger, well-diversified companies that can generate returns from a number of different markets and from various business channels. We currently view hospital and clinic operators as one of the best ways to invest in the growth of the Asian healthcare market.

The chart below shows the price development of two of the most popular Asian Healthcare market indices, the FTSE ST Healthcare Index (Singapore) and the BSE Healthcare Index (India). Both indices have rallied strongly after the sharp correction in 2008; however, both markets have achieved attractive returns in the past couple of years.

 

FTSE ST Healthcare Index (Singapore) and the BSE Healthcare Index (India)

This is in sharp contrast to most large-cap healthcare stocks that are primarily focusing on Western markets. The chart below shows the historical performance of three of the most popular healthcare stocks in North America (Abbott Laboratories, Pfizer, Medtronic). Many of these companies have performed very poorly in the past decade and have even generated negative returns for investors. Of course, the past decade certainly saw a time of disappointing stock market returns, but it is surprising that not even healthcare companies have been able to generate decent returns.

 

Abbott Laboratories, Pfizer and Medtronic Stock Performance

There are, of course, also Western healthcare companies, which will benefit from the growth in Asia and other emerging markets. Therefore, some of these Western companies could also see better times ahead, both in terms of their sales and profits and, hopefully for investors, in the form of higher stock prices. Investors have to realize that a direct investment in Asian healthcare companies has more risk. These markets and the individual stocks are usually more volatile than their Western counterparts.

The rise of Asia will be one of the dominant investment themes in the next 20 years. The increased political power, rapid population growth and rising income levels will present a large number of attractive investment opportunities. But with high return potential also comes higher risk. That is the reason investors need to carefully select their individual investments. The Asian healthcare market is one of the most interesting investment themes today, a structural trend that will go on for many years and presents a great investment diversification for Western investors.

Daniel Zurbrügg

is the Managing Partner of Alpine Atlantic Global Asset Management, a Swiss-based independent investment management firm. The firm provides clients with independent investment management, asset protection and family office services and is the issuer of the global investment newsletter Echo From The Alps. With a global network of partners, Alpine Atlantic's aim is to provide clients with true "turnkey" solutions for global investing. Prior to setting up Alpine Atlantic, Daniel held various positions with other banks and financial companies. Daniel is a Chartered Financial Analyst and regular guest speaker at international investment conferences.

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  • s c

    True, shopping for investment safety will be an increasingly important goal (assuming that there’s anyone left besides Soros who can invest in anything). The idea that currency diversification is “obvious” to everyone is bunk, Daniel. If that was true, our brain-addled government would not dare imply that all wealth belongs to the federal government or that Americans are now generational slaves to a government gone mad.
    As long as we have to compensate for those who think the printing press means instant wealth creation, America will never reach its full potential, and all future generations of Americans will be cursed by a mentality that demands that we sacrifice for the government, but that this same government NEVER has to sacrifice for us.

    • Bob from Calif.

      Hello SC,

      I agree that America is being held back. It is not being allowed to reach its full potential. I also know that greed is a part of investment. But,if we want America to be strong, Americans need to invest in America, and stop sending all of our money overseas.

  • bob wire

    When you spend a dollar you are voting for something and against something.

    So by all means look for “attractive” first and foremost if it means selling your birth rights!

    Went will it become clear that profits alone is not an indicator of value?

    • meteorlady

      It’s clear to me that profit is not an indicator, but it’s also clear that to invest in the the US dollar is not the right decision either. We have already sold our birth rights… we sat back for the last 25 or 30 years and elected people that took control of our lives, our investments, our homes, our schools, our energy, immigration, and our future generations are saddled with debt beyond their ability to pay it back.

      So, I vote with my dollar but I don’t believe that I’m selling out to anything if I purchase stock in a foriegn country. My government has already done that for me without my consent.

  • C130 Gunship

    Daniel Zurbrügg states: “Despite the outlook for U.S. and European economies being highly uncertain, the U.S. dollar and the euro remain the world’s dominant currencies.” Well Mr. Zurbruug, IF I were a physician, my diagnosis for the current fiat currencies would be: The dollar remains the hooker with crabs while many other currencies have full blown AIDS.

    • Old Henry

      C130:

      I think our hooker currency’s crabs have AIDS.

  • Old Henry

    Daniel:

    I am afraid that currency investing is not “obvious” to everyone in the U.S. Most of the electorate is simply brain-dead headline readers with the attention span of a goldfish. (Hence a street-thug communist Kenyan Muslim conducting an occupation of our White House.)

    For the last few decades I have tried to pay attention to stocks and commodities. However, commodities have always eluded me. So, I have never “gotten my feet wet as” as I have never had the money to lose.

    I do have a couple of foreign stocks, one health care related and one not, in my portfolio, but have not been overly impressed with their performance. Putting money off-shore is, for lack of a better term, scary. It seems too far out of my control as the governments of most of these countries do not appear to be very stable, or they are far too controlling / manipulative – Communist China.

    How do you get beyond the mental perception of these governments instability? There is so much civil unrest looming on the horizon that I have been giving very serious consideration to liquidating all my holdings – U.S. and foreign – using the proceeds to get completely out of debt (a couple of small mortgages), buying some silver and using ther rest to buy more food for long-term.

  • eddie47d

    Diversifying is important and even investing in foreign stocks (if you have the money). I would also be cautious about putting too much of my money into another countries economy. Why feed their growth.

  • DaveH
  • i41

    Buying land you can produce something on that is useful to humans is the most important. Currency and stocks are only as good as the bs being feed to the buyer. The buying of over priced metals isn’t real bright, unless they can easily used, like lead. Until the Banking Reform Bill is done away with, the idea of buying to Wall Street rosy out look, or even other countries sales approach, nothing looks to good to put what money you have in.

    • Old Henry

      i41, ah yes, the silver bullet…

  • Mad Max

    Oppurtunities are hard to come by everywhere. A top computer scientist says we don’t have be 40 hour wage slaves anymore.
    Time to stand up for a new direction before everything falls apart. If you’re an American, you have to read:

    “Common Sense 3.1″

    • http://marcum1@wildblue.net coal miner

      Mad Max:

      Welcome back.

  • Dan az

    I read that the biggest thing going is natural gas.With upwards of 300% takes.Even Saudia has bought into the next energy fuel with upwards of 40 billion and have dropped there production of oil by 50%.I don’t play the market but if I did thats what I would be looking into!

  • i41

    Natural gas works great of staionary heating and in gas engines where it is warm, but if you are using it in cold areas like here it gets down below 32 degrees, the engines will take heat converters, sa,e goes for using gas in diesel engines, there must be water injecting to keep the engine from melting down, and there is a power loss. The filling stations will need to be revamped and with EPA having their paws in the equation prices will be high. Also with the increased weight of high pressure tanks and regulators to control and hold the gas, will increase the vehicle’s weight greatly, lower fuel economy mightly. Also the engines will need to have special valves and heavier blocks or we will go bach to cast iron blocks not the normal aliunium (sp) we use now to hold down weight. Something the expert trained apes with degrees forget. Just like the clown scientist who claims nobody needs to work 40 hours any more, must be a government idiot or a lives at home, or is 50 yr old pervert with a rich mama on welfare.

    • Dan az

      i41
      Thats the point if it works against you then its a sure thing that they will do it.DC logic!

  • meteorlady

    With REAL inflation running as it is, the food stocks that I have put away, have made more money than the stock market is currently returning. I have also bought silver and gold and those are rocking right along. This is real tangible assets for me. I am still invested in the stock market through strong mutual funds, but don’t intend to go off the deep end and start buying individual stocks again. I also have Swiss Francs which I used to purchase a fund at my investment house.

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