“In light of the recent heightened regulatory atmosphere, the impact on luxury goods is quite interesting because China wants an olive-shaped distribution structure with a significantly large middle class. This can actually be quite good for consumption and for luxury spending in particular because in China, it is the middle class that are driving the growth of luxury spending accounting for more than 50 percent. So there is certainly an impact on investor sentiment in the short term.”
“Over the longer term, we could see consumer tastes starting to shift. So perhaps less conspicuous branding and more spending on experiential luxury, such as wine, travel, and this has been the direction of travel with companies like LVMH diversifying into wine, travel and into other areas to benefit from the growth of the experience of luxury. These periods of volatility could be buying opportunities as well.”
3. Insurance, healthcare and Chinese biotech
Victor Kohn on insurance and healthcare: “Insurance is an interesting area. If you go back to the experience after SARS in 2003, the demand for insurance hit an upward inflexion point. It is likely Covid-19 will have a similar impact over the long term, both in life and health policies, and insurance policies. Another area which will likely receive a lot more attention going forward, of course, is health care. And here, you see it from both the demand and supply side. China’s population is ageing. Lifestyles, diet patterns and rising incomes means that demand is going to grow. On the supply side, the government regulation has been very supportive and there is ample availability of venture capital money. This means that also the supply is going to increase.”
“In our current portfolios, there are a number of companies in the health care sector that that we like a lot. We like bio and pharma companies which have innovative products. Although many of them are young and in the development stage, we take to a degree a basket approach looking for companies with strong management and a very robust research pipeline. As a complement to that, we’re also interested in organisations that enable drug discovery and development, for example, the contract research and clinical trials, services, CROs or Development and Manufacturing Services CDMOs. These companies allow managers to benefit from structural growth in the industry without having to bet on a binary outcome of a company being successful in their scientific development.”
Valeria Vine on Chinese biotech: “Chinese biotech really came into investor focus in 2017 and 2018 with significant breakthroughs. Case in point is Legend Biotech’s successfully treatment of an American man from a previously incurable form of blood cancer. He had an infusion of edited T cells into his body in August 2017 and had the reaction that typically accompanies such treatment where the cells start to attack the cancer cells, but after about three or four days he was cured. This was an incredible achievement. According to early trials with 35 participants, 33 of them went into remission – a success rate of ninety four percent.”
