Asia’s healthcare opportunity

Explore the major trends shaping Asian markets and how they could impact investors over the next 5–10 years.

Asia’s healthcare system is in the midst of a major overhaul. Governments in the region are spending more to address aging populations, the deficiencies exposed by the COVID-19 pandemic, and the benefits of digitalizing.

Industry estimates forecast Asia’s healthcare market could more than double from 2017 to 2024 to become worth USD 4.2 trillion. This represents a 12% average annual growth rate, a much faster expansion than the 5% growth pace projected for the global healthcare market.

This growth story spans regions and segments, giving rise to investment opportunities in various forms. Asia’s healthcare opportunity—a unique theme that offers secular prospects—is the focus of this Shifting Asia edition.

China is where growth is expected to be most vibrant. A looming demographic crunch is fueling a wave of spending and reform, targeted at boosting healthcare capacity, bringing down costs, and bolstering self-sufficiency. Thanks to supportive policy and significant local and foreign demand, the country’s biotech, oncology, and contract research organization sectors are now thriving.

Catalyzed by the pandemic, a trend taking off all over Asia is the rise of digital medicine platforms. Telemedicine user growth in Southeast Asia has risen six times since the start of the pandemic, and we expect China’s telemedicine market to overtake the US’s to become the world’s largest by 2025.

Meanwhile, Southeast Asia is home to a vibrant medical tourism industry. India is primed to ride the booming biosimilar market’s wave in the years ahead. And Japan’s healthcare industry is on the cusp of a digital transformation, driven by the need to innovate amid mounting demographic challenges.

The investment prospects of this theme are vast and diverse.

Indeed, healthcare is a vital good and consumers always seek the best outcome possible. To invest, we recommend diversifying through mutual funds or exchange-traded funds rather than picking specific single securities because of the risks and volatility. Although there was a scarcity of dedicated Asian healthcare funds in the past, this is changing fast to reflect the industry’s dynamic evolution.

How to invest in Asian healthcare

While there has been a scarcity of dedicated Asian healthcare funds in the past, this is changing fast due to the rise in new healthcare listings in Asian equity benchmarks.

Publicly listed equities of Asian healthcare companies offer a direct means to gain exposure. However, these companies generally make up a smaller share of equity benchmarks than in Europe or the US, and most tend to be mid-caps. Also, unlike other new-economy sectors, there are much fewer Asian healthcare companies listed outside Asia on overseas markets or as ADRs/GDRs.

While in the past some Chinese biotech start-ups sought to list overseas on boards like the NASDAQ or AIM (a sub-market of the London Stock Exchange), this trend has largely dried up due to the HKEX Chapter 18 initiative. There have also been many new healthcare listings onshore on China’s National Equities Exchange and Quotations (NEEQ), ChiNext bourse, and A-share markets. Inclusion of healthcare stocks into the Stock Connect program has increased northbound and southbound flows between onshore and offshore China in recent years, improving liquidity and trading.

We advocate investors adopt a diversified approach to investing in Asian healthcare stocks.

Investing in healthcare also requires highly specialized expertise in the subject matter, which most investors may not possess. In this sense, we recommend investing in mutual funds or exchange-traded funds. While there was a scarcity of dedicated Asian healthcare funds in the past, this is changing fast due to the rise in new healthcare listings, the market’s dynamic growth, and healthcare stocks’ growing weighting in Asian equity benchmarks.

Risks

While healthcare demand tends to be resilient through economic cycles and is generally perceived as a safe-haven sector, the drug industry, particularly biotech, has high sensitivity to risk appetite. The innovative drug industry is vulnerable to high failure rates from strict regulation in clinical testing, given the repercussions for human health and the capital hungry nature of R&D and clinical trialing. In the US, less than 10% of drugs are successful from phase 1 to clinical approval, according to the Biotechnology Industry Association.

In most Asian drug markets, the biggest risks relate to regulatory changes, particularly drug pricing and reimbursement policies. Intellectual property disputes and patent expiries are other external risks. Protectionism and trade disputes, particularly with the US, in the last half decade have also impacted exports of Asian generic drugs, medical devices, and active pharmaceutical ingredients.

Sustainable and impact investing opportunities in Asian healthcare

Health is central to the UN Sustainable Development Goal (SDG) 3 “Good Health and Well-being,” and the 13 underlying targets ranging from infant mortality to epidemics and cancer. But even beyond SDG 3, almost all of the other 16 goals also have targets that are related to health. This illustrates the importance of healthcare improvement to development— as life expectancy more than doubled over the past century and the workforce grew, healthcare gains are estimated to have contributed over one-third of all economic growth during this period1. Today, advancement in treatment options and accessibility remains a key focus for sustainable development.

The COVID-19 pandemic is a stark reminder of these challenges. Asia Pacific was not on track to meet any of the SDGs even before the pandemic, and the Asian Development Bank (ADB) estimates that the crisis has pushed 162 million people in the region back into poverty. This impact is set to linger, as vaccination rates—and the accompanying economic reopening—in the region are uneven at the time of writing (August 2021). This has added near-term setbacks to long-term developmental challenges.

Overall healthcare development in Asia is similarly uneven. While regions such as Japan, Taiwan, Thailand, and South Korea rank within the top quartile in terms of global accessibility2, the Philippines and Vietnam score around average and South Asia is lagging. Accessibility may also vary, especially in locations with infrastructure challenges or informal labor structures.

We hope you enjoy reading this publication and welcome any thoughts or feedback you may have.

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