Health and wellness sector set to do well in 2011

A growing demand for pharmaceuticals in emerging markets mean investing in health and wellness will be paying dividends long after New Years resolutions have faded, it is claimed.

Emerging markets are set to contribute 70% of pharmaceutical growth by 2015 and China will invest £125 billion supporting healthcare reforms by 2011, according to Peter Kirkman, fund manager of the JPM Global Consumer Trends Fund. Governments in Russia and Brazil have made similar commitments.

‘Growth for the healthcare sector is shifting eastwards. Not only is there a growing population to look after but there is also a lot of catching up to do in terms of understanding the relationship between healthcare spending and productivity,’ he said.
 
He points out that there has been a rapid rise in incomes in emerging markets, an unprecedented amount of state healthcare insurance expansion and health infrastructure building meaning pharmaceutical sales from the East are now eclipsing those of developed markets.

Pharmaceutical consumption growth also outstrips per-capita GDP growth. Chinese GDP has grown around 10% in recent years whilst pharmaceutical spend growth has been 25 to 30% per year.

According to Kirkman, it is Western brands that are the real beneficiaries of this demand. ‘In emerging markets, branded drugs dominate the market as they are seen as the best proxy for quality as they are in the developed world,’ he explained.

As well as the latent demand, pharma companies are also benefiting from the changing patient-needs in emerging markets. Sanofi-Aventis is a major Diabetes drug manufacturer and has 30% of its custom coming from emerging markets as Diabetes becomes a growing problem there. In Russia, for example, 45 million people have Dyslipidemia which is caused by too much cholesterol in blood.

‘Investors can tap into the emerging market healthcare boom by investing in Western pharmaceutical brands that are active in emerging markets. Stocks like GlaxoSmithKline, for example, have high EM exposure with 16% of their total sales for the first nine months of 2010 coming from the region,’ said Kirkman.

The JPM Global Consumer Trends Fund was launched in April 2008 at the start of an extremely turbulent period for world stock markets, yet it has performed exceptionally well, he added. The fund has returned 43% since inception, outperforming global equity markets by 37%. The fund is diversified across sectors and regions and the alpha generated by the fund has come from a very broad range of companies with high Emerging Market exposure.