Emerging market healthcare stocks were on fire earlier in the year. While they have taken a breather recently, MRP believes there’s more upside ahead as the coronavirus pandemic firmly shifts its focus to emerging market countries. MRP has identified a group of drug manufacturers, medical equipment makers, PPE suppliers and providers of health care services that are benefitting from this shift.
Related ETF: KraneShares Emerging Markets Healthcare Index ETF (KMED)
On July 20, MRP’s closed its Short India theme and replaced it with a Long Emerging Market Healthcare theme. The original Short India theme, which we launched on March 27, was predicated on our belief that India would become a hotspot for the coronavirus, and that the health crisis would destabilize the country’s already weakened financial system, triggering big capital outflows from Indian assets. While we were on the mark about India’s COVID curve, our expression of the theme was flawed. Indian stocks rallied along with global equities in the aftermath of the worldwide stock market crash.
Meanwhile, the rapid escalation of COVID-19 cases in India, other parts of South Asia, and across Latin America over the summer suggested to us that emerging markets would soon become the epicenter of the pandemic. Accordingly, MRP expanded the focus of the theme beyond India so as include the whole emerging market segment. We also determined that a better way to gain exposure to the recalibrated theme would be through healthcare stocks in emerging markets, as we expected demand for healthcare services and products to rise in those markets until the pandemic is contained.
Since we made the switch eight weeks ago, the KraneShares Emerging Markets Healthcare Index ETF (KMED) has returned +3% against the SPY’s +6% gain. We believe KMED’s recent underperformance is temporary. That’s because the pandemic’s progression through emerging markets has only accelerated since our July 20 report, and this should support a commensurate rise in demand for the products and services of companies represented in the KMED ETF.
Emerging Market Pandemic Surge
The COVID-19 surge in India over the summer has been staggering. At the time of our July report, India had 1.08 million reported infections, a milestone that had taken five and a half months to reach. Now, just eight weeks later, India has over 5 million infections. In fact, it took just 11 days for India to go from 4 million cases to 5 million cases. Serological surveys suggest the true number of infections may be far higher, between 20 and 40 million.
The pandemic is also raging through Latin America, where the population is more urbanized than in Europe, Oceania, Asia or Africa, and where close quarters and multigenerational households have undermined attempts at social distancing. Porous borders have made it difficult to quarantine infected travelers…