Investing in the future of global healthcare | #healthcare | #elderly | #seniors
Investing in the future of global healthcare
Demographics and technology are both working in favour of the sector, but be aware of potential risks. By Yuttachai Teyarachakul
Megatrends are global drivers that will shape economies, businesses, societies, cultures and lives. By identifying and investing in areas that will be positively affected by these megatrends, investors can capture long-term growth opportunities.
Global healthcare is one of the key industries that UOB has identified to benefit from megatrends, but there are also considerations and risks to be aware of when investing. Among the key drivers that are shaping the future of global healthcare:
Ageing populations: One powerful demographic trend driving the demand for the healthcare sector is ageing populations, particularly in developed markets. The number of older people in the total population is growing rapidly. In 2020, there were 727 million people aged over 65 globally, and the World Bank has predicted that this number will more than double by 2050.
With an ageing population, more healthcare resources and care providers will be required to meet the increased demand for services. Global healthcare spending is expected to rise at a 3.9% compound annual growth rate (CAGR) between 2020 and 2024, and this trend is likely to accelerate over the next 30 years as the demand for healthcare services, medicines and medical devices increases.
Medical advances and technological innovation: In medical science, there have been giant leaps in research and treatments. In recent years, promising innovations have emerged, such as immuno-oncology, which aims to help the body’s immune system identify and attack cancerous tumours in a targeted and more effective manner.
Other emerging innovations include cell therapy, which transplants healthy cells into a patient to replace dysfunctional ones, as well as gene therapy, which aims to reverse the negative effects of a defective gene and has the potential to treat almost 100 diseases.
Artificial intelligence (AI) and robotics are also being used increasingly in the healthcare sector. For example, the use of AI to analyse voluminous data enhances the speed in which diseases are diagnosed and is especially useful in the area of telehealth. Surgeons are using robotics to conduct complex procedures with greater precision. These technologies can improve medical outcomes and, if adopted at scale, can also result in cost savings for patients in the long run.
While the global healthcare market is projected to grow over the next three years, there remain some drawbacks of which investors should be cautious. These considerations include:
US policies and regulations: The presidency of Joe Biden promised a return to the Obama administration’s approach to healthcare by building on the Affordable Care Act (ACA). The ACA emphasises value-based services and puts a cap on healthcare services and drug prices, which will limit the profitability of healthcare companies.
A lean pipeline of health professionals: Increasing demand for healthcare services amid the existing and projected shortage of skilled clinicians will likely continue. This talent gap may have long-term, detrimental consequences for inpatient/outpatient care, elderly care, home and remote healthcare services.
Long and costly development times: Not all drugs in development make it out of trials, while some treatments may take longer than expected to reach the market. These may have an effect on a company’s shorter-term bottom line.
Investors should stay invested in the global healthcare sector over the long term as structural drivers are already in place and should continue in the years ahead.
While valuations and annual growth rates of the healthcare sector remain attractive relative to other sectors such as fast-moving consumer goods or oil and gas, investors should tap the experience of professional investment managers to distinguish potential winners within this sector.
As part of UOB’s risk-first approach, the bank also recommends that investors build up a diversified portfolio that is in line with their risk appetite. Before coming to any investment decision, investors should always ensure that they have considered the potential risk factors and are clear as to what they are investing in.