Strong healthcare sector reflecting well in stock market
SGX All Healthcare Index's outperforms counterparts with total return of 16.2 per cent in past 12 months
The pulse of the healthcare sector here seems strong, despite the blows of a sluggish economy in the past year.
Sectors such as education, health and social work, which are grouped under "other services" industries, grew by 4.7 per cent last year, according to latest figures from the Ministry of Trade and Industry.
At the same time, the biomedical manufacturing cluster was boosted by growth in the pharmaceuticals and medical technology sector, with an output increase of 30 per cent in the fourth quarter.
The strength of the local healthcare sector seems to be reflected on the Singapore Exchange (SGX) as well.
According to a research report by SGX last week, the SGX All Healthcare Index generated a total return of 16.2 per cent over the past 12 months.
This means it outperformed counterparts MSCI AC Asia Pacific Ex Japan Healthcare Index and MSCI World Healthcare Index, which generated total returns of -0.5 per cent and 10.4 per cent respectively.
The SGX All Healthcare Index measures the performance of healthcare providers, medical equipment suppliers, pharmaceuticals and healthcare asset owners listed on SGX.
It covers over $30 billion in market capitalisation across the healthcare sector here.
Mr Clive Tan, executive director of 8I Holdings, an investment holding company with interests in financial education, told The New Paper that the medical sector has potential, especially in light of the Committee on the Future Economy’s (CFE) report.
In particular, one of CFE's strategies highlights the need for enterprises to be able to "organise people, ideas and capital effectively to create value".
Mr Tan, who conducts courses on value investing and investment in private and public markets, said investors should look out for "hidden champions" in each industry and for those with the right business model, management and valuation approach and focus on their fundamentals.
He said: "The medical sector here is one with good fundamentals as the industry has the best brains, advanced technology and deep know-how."
Increased healthcare spending by the Government will bode well for the future of healthcare companies listed on SGX , noted SGX's report on Feb 23.
As Singapore's population ages, the Government's annual healthcare spending has doubled over the last five years, with enhanced subsidies and expanded services bringing the total spending to $10 billion last year, Finance Minister Heng Swee Keat said in his Budget statement this year.
"(Increased spending) will help boost the sector in Singapore as residents will be encouraged to seek healthcare services when required," said the report.
Governmental decisions have also affected the well-being of healthcare-related stocks around the world.
In China, the expansion and launch of the new National Reimbursement Drug List (NDRL) for public medical insurance programmes is expected to boost China's pharmaceutical stocks, noted a DBS report on Feb 24.
The new NRDL increased the total number of medicines reimbursable from public medical insurance programmes by 18 per cent, which will drive overall demand for medicines.
Furthermore, the portion of China's population under effective public medical insurance protection should increase from 20 per cent to 32 per cent last year to over 50 per cent next year, noted the report.
"As expected, China pharmaceutical stocks performed strongly, and the share prices of at least 11 China pharmaceutical stocks listed in Hong Kong broke past their 52-week highs yesterday," said DBS analyst Mark Kong.
Meanwhile, US President Trump's threat to replace the Affordable Care Act with new healthcare legislation has also sent ripples to healthcare stocks.
Stocks of hospital operators, who could lose customers if Americans are no longer required to have health insurance, plummeted after Mr Trump's election last November.
The sell-off also hit companies that sell equipment to hospitals, noted Fortune magazine.
Pharmaceutical and biotech stocks plunged in January after Mr Trump accused them of "getting away with murder" with their prices.
But these stocks recovered just a few days later, when Mr Trump said his administration will significantly cut the length of time it takes to win regulatory approval for new medicines.
Singapore's healthcare stocks should not see such shocks.
In the long term, there are multiple opportunities and challenges in the ongoing supply and demand for healthcare services across the Asian healthcare industry.
On the demand side, rising affluence and ageing demographics will be key structural drivers.
Notably, industry reports have highlighted that the share of population aged over 65 years in Asia is set to quadruple by 2050, which will inevitably lead to increased demand for healthcare services, said SGX's report.
On the supply side, the number of doctors, nurses, hospitals and medical equipment diverge across the region, and still trail the per capita averages of the 34 Organisation for Economic Cooperation and Development member countries.
"With limited fiscal funding covering a range of sectors beyond healthcare, there is an increasing role for corporations to engage these opportunities and challenges," noted SGX.
Top performing healthcare companies
Investors have the opportunity to participate in the structural Asian healthcare theme through SGX-listed stocks.
Specifically, the 10 largest healthcare stocks provide significant regional exposure, with only an average of 33 per cent of their revenues coming from Singapore.
In comparison, 60 per cent of their revenue exposure comes from Asia Pacific (based on the last financial year).
There are 32 healthcare-related companies listed on SGX, comprising 29 stocks, two Real Estate Investment Trusts and one Business Trust, and they have a combined market capitalisation of $37 billion.
BEST PERFORMING COMPANIES:
International Healthway Corporation (IHC)
Total return (year-to-date) 110 per cent
Total return (1 year) 72.1 per cent
International Healthway Corporation was founded in 2010 and provides healthcare services in Singapore, Japan, China, Malaysia, and Australia.
The company operates in two segments - healthcare services and Integrated Medical Real Estate.
On Feb 16, OUE launched a takeover offer for IHC and agreed to buy another 35.77 per cent stake in IHC, which will increase its stake in the company to 57.6 per cent.
Total return (year-to-date) 35.8 per cent
Total return (1 year) 66.6 per cent
Talkmed Group was founded in 1997, and is based here. It operates primarily through two segments, Oncology and Stem Cells Services.
The group functions through 12 doctors at seven clinics in several private hospitals and medical centres here.
Total return (year-to-date) 10.2 per cent
Total return (1 year) 75.1 per cent
Singapore O&G was founded in 2011, and provides specialised medical serves for women. It operates through three segments, Obsetrics & Gynaecology, Cancer-Related and Dermatology. The company operates through 11 clinics in seven locations here.