China’s top health care fund manager Han Guangzhe is beating all his domestic rivals by betting on market leaders with some of the most expensive equity valuations, saying they will deliver as the industry expands.
Eight of his top 10 picks have gained by 17 to 142 per cent so far this year, while two stumbled by 14 to 26 per cent, helping his Golden Eagle Healthcare Fund end the first half as the top-ranked sector leader with a 33.2 per cent return, according to a ranking by East Money Information, a data and financial services provider.
“I prefer growth stocks in expanding industries, especially companies that already have a relatively large or commanding market share,” Han, Beijing-based money manager at Golden Eagle Asset Management, said in an interview. “In future, the trend is likely that the big ones will become even bigger.”
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An MSCI index tracking 90 Chinese health care stocks with a market value of HK$2 trillion (US$257 billion) have rallied 22 per cent this year, twice the global average return, according to Bloomberg data. They also outpaced their global peers by 63 per cent versus 14 per cent in 2020, during which Han’s 10 stocks surged by 101 per cent to 2,065 per cent in 2020.
His top 10 holdings at the end of March included Chongqing Zhifei Biological Products, Porton Pharma Solutions, Changchun High & New Tech Industry, Xian Kaiyuan Investment, Zhejiang Jiuzhou Pharmaceutical and Shenzhen Mindray Bio-medical Electronics. They trade at 29 to 134 times forward price-earnings multiples, according to Bloomberg data, compared with an average of 73 times for MSCI China Health Care constituents.
Han, whose 13-year experience in the industry included stints at China Asset Management and Cinda Securities, currently manages four funds with total assets of 2.64 billion yuan. His other three funds have gained 29.5 per cent to 49.6 per cent this year betting on green industries along with China’s efforts in cutting carbon emissions.
Investors are willing to pay a premium for future growth, he said, citing the history of iPhone maker Apple as an example. The rally in US growth stocks like Apple can serve as a reference and China is trailing the US in a similar direction, he added.
“The health care industry has quite some certainties for growth in the longer term,” he said. “Those with unique competitiveness and long-term growth potential, such as new medicine developers, will be more resilient” in the face of market volatility, he added.
Chinese health care stocks remain a bright spot as the mainland equity market struggles with broader issues about economic slowdown, a normalisation of fiscal and monetary policies, and other geopolitical concerns. The CSI 300 Index of biggest stocks in Shanghai and Shenzhen has declined 2.5 per cent this year, after a 27.2 per cent jump in 2020.
“Markets could fluctuate periodically due to changes in sentiment and liquidity conditions,” Han said. “But these fluctuating periods offer a good test to their long-term fundamentals and investment worthiness.”
Health care companies have skyrocketed especially since the coronavirus became a pandemic since March last year, with companies ranging from vaccine producers Fosun Pharma and CanSino Biologics to medical equipment maker Shenzhen Mindray reaching record highs.
Their appeal has helped keep interest in new stocks in Hong Kong. Chinese biotechnology and health care firms made up half of the 10 initial public offerings in the city in the first six months this year with the highest bids from retail investors.
As to companies offering aesthetic or beauty-related services, Han is wary of such “downstream” businesses because of their not-so-favourable business model. “Upstream” firms, such as Bloomage BioTechnology and Imeik Technology, have a relatively positive outlook due to the scarcity on the supply side, he said.
Han is also optimistic on vaccine manufacturers, new medicine developers, and service providers that support the research and production functions of pharmaceutical firms. Top-ranking private hospitals with valuable assets are also in his sights.
“Some private hospitals can go public now,” he said. “Those with unique assets deserve more attention.”
Shenzhen-listed Xian Kaiyuan operates third-class hospitals in mainland China, the highest grade of private hospital ranking, in a market dominated by state-owned peers. The stock has surged 46 per cent this year, on top of a 159 per cent surge in 2020.
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