Fears related to generic drug price pressures have caused a 50% value drop since summer 2018, data shows an highly undervalued pharmaceutical industry. Focus on securities related to consumer goods. The electric vehicle segment is doing well, and real estate keeps holding its ground.
MILAN, March 13 (Class Editori) – Healthcare seems set on becoming the Chinese stock market’s leading sector during 2019. “After its 50% value loss since summer 2018 – when price pressures on generic drugs caused some panic – at the moment the sector is highly devalued. We believe it presents quite the interesting risk/return profile,” writes East Capital’s investment team in Hong Kong in its latest outlook on China.
“Despite generic drugs dominating the Chinese healthcare industry, and the government’s strict pricing, there is space for success for all innovative companies capable of consistently launching new drugs. New products approval and greater clarity during the implementation of the national procurement program will drive the leading companies’ upswing,” the analysts said.
East Capital also predicts the consumer goods’ greater weight, as well as an increase in demand, given the society’s “considerable exposure” to strong brands. “Despite the economic slowdown and the international challenges weighing consumer confidence down, some sub-sectors have relatively strong foundations, and seem very promising when looked at from a long-term perspective. Companies such as Midea Group and Yili Dairy, holding leading positions in their respective sectors – domestic appliances, and dairy products – are finding themselves in an ideal position for long-term trend capitalization”.
East Capital’s investment team also noted that “a number of factors, like the high starting point in 2017, the credit decrease for buyers, and the worsening of consumers confidence, have hit the domestic automotive sector negatively” – as in 2018 the sector registered its first 4% drop since the beginning of the 90s. In contrast, sales of electric vehicles jumped up 82%. “The government continues in its efforts to promote the use of less polluting vehicles, so we believe that the electronic vehicle segment will remain a growth driver. We also expect that the recently announced measures, meant to stimulate cars and household appliances sales, will lead to a rebound in consumer confidence, and to ratings recovery”.
The real estate sector is holding its ground. In 2018 sales grew up 14.7%, driven by the increase in both volumes and prices.”We expect the sector to keep strengthening its position throughout 2019. The loosening of purchasing restrictions, together with the reduction of financing costs, will provide additional support for real estate-related securities,” the analysts concluded. “Despite the backdrop, we continue holding a relevant position against all major developers in China. In line with historical trends, we have the least confidence in materials, energy and industrial sectors, while we see better opportunities defiling themselves in structurally active segments – especially those related to consumption, healthcare, and environmental protection”.
(Source:Class Editori)
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