Domestic healthcare stocks and the related exchange traded funds (ETFs), broadly speaking, are flailing this year. Some simple globe-trotting can help investors find healthcare ETFs that are surging. Just look at the the Global X MSCI China Health Care ETF (CHIH), which is up more than 15% year-to-date.
Last December, Global X added five China sector ETFs, bringing its roster of sector ETFs devoted to the world’s second-largest economy to 11. The result is a full offering that corresponds with each of the eleven major economic sectors identified by the Global Industry Classification Standard (GICS). The suite will offer investors the first way to comprehensively access and evaluate the country’s sectors in the liquid and transparent US ETF structure.
With China being the world’s largest country by population and home to the second-largest economy behind the U.S., it is not surprising that there is a significant opportunity set with the country’s healthcare sector.
“Although China’s health care sector only began privatizing in the 1990s, it is today a vast ecosystem hosting the world’s second largest pharmaceutical market,” said Global X in a recent note. “With China’s health care industry projected to be worth $2.4 trillion by 2030, its maturity from infancy will be tied to growing domestic demand and expanding its global reach.”
A Growth Opportunity
In the U.S., traditional healthcare ETFs are often viewed as defensive, value investments, but CHIH offers a growth play on a booming healthcare market. The ETF tracks the MSCI China Health Care 10/50 Index.
CHIH holds 36 stocks, more than 56% of which are pharmaceuticals names. The healthcare providers and life sciences industries combine for almost 28% of CHIH’s weight. China’s pharmaceuticals industry is experiencing steady growth.
“With over 15,000 drugs in the pipeline, drug development has grown at a 7.8% Compound Annual Growth Rate (CAGR) over the last 5 years,” said Global X. “Local competition Is intensifying in anticipation of expanded subsidy programs and the approval of as many as 40 foreign drugs for domestic use. Although the development of generics has helped domestic pharmaceutical companies achieve scale, their growth will be dependent on their ability to complement or compete with life sciences and biotech firms that have taken advantage of China’s liberal regulatory environment to develop innovative treatments for complex diseases and cancers.”
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China’s rapidly aging population is another long-term catalyst for CHIH.
“By 2027, China’s senior citizen population will double, meaning 324 million Chinese will be over the age of 60,” according to Global X.
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