Our strategy: targeting the unique opportunities in China’s healthcare sector

We focus on Chinese healthcare companies with long-term growth potential based on industry leadership, competitive advantage, clear business strategy and transparent corporate governance.

Our selections are mainly in the following subsectors:

1. Medical devices

Companies in this area are benefiting from the following factors:

• The market is seeing strong demand, both overseas and domestic.
• Technological advances are driving upgrades to higher-priced equipment.
• China’s domestic producers are competitive in terms of cost, quality and innovation.

2. Contract Research Organizations/Contract Development and Manufacturing Organizations

CROs and CDMOs are businesses that serve other companies in the healthcare industry on a contract basis, providing services ranging from drug development to manufacturing. They are enjoying robust demand from global and domestic customers seeking to upgrade their products through increased R&D. Chinese contract businesses have key cost advantages, reflecting their ability to draw on a huge pool of graduates with a biology or chemistry background, and a vast patient base for clinical trials.

3. Innovative drug makers

We prefer drug makers with strong pipelines of innovative drugs over generic drug makers, since the former benefit from much stronger pricing power than the latter.

4. Vaccine makers

These businesses enjoy:

• A low penetration rate
• A rising domestic market share
• The contribution of revenues from COVID-19 vaccines and new products.

The vaccine market in China is currently worth around RMB 40 billion (US$5.9 billion) – a figure that is expected to rise to as much as RMB 100 billion (US$14.7 billion) over the next 10 years. While the Chinese population is four times larger than that of the US, expenditure on vaccines is only 5% of that in the US. This suggests considerable potential for growth, given that overall vaccine expenditure is highly correlated with population size.

5. Medical services

Businesses with a strong cash position are well placed to grab market share during the pandemic.

The strategy in brief

• The strategy aims to achieve long-term capital growth by investing primarily in a concentrated portfolio of 30 to 40 Chinese healthcare companies.
• Our investment strategy combines a deep understanding of key industry drivers and a robust bottom-up stock-selection approach.
• We focus on Chinese healthcare companies with long-term growth potential based on industry leadership, competitive advantage, clear business strategy and transparent corporate governance.
• The strategy encompasses businesses of all sizes, from small to large-cap, which have unique competitive advantages in different subsectors.
• However, the fund has higher exposure to CRO/CDMOmedical devices and medical services, as well as selected exposure to pharmaceutical companies with strong pipelines of innovative drugs.

Senior Portfolio Manager Chris Liu, who leads our China Healthcare Strategy, has over 17 years’ experience in asset management and has spent over 10 years researching and investing in China’s A shares.