Click here for recent Market Insight reports on our EM Healthcare theme →

July 20, 2020

MRP Adds Long Emerging Markets Healthcare as a New Theme

Summary: The rate at which new coronavirus infections are surging across Latin America, South Asia, and Africa suggests that emerging markets X-China will become the next epicenter for the pandemic. Outside the United States, the seven highest case counts are in emerging market (EM) countries. Combined, these seven already have over 5 million confirmed infections to-date, which pushes their share of the global tally from just 5% a few months ago to 36% today. This should boost demand for EM healthcare services and products until such time as sufficient quantities of vaccine doses are produced worldwide to contain the pandemic.  

Related ETF: KraneShares Emerging Markets Healthcare Index ETF (KMED)

MRP initiated a Short India theme on March 27, 2020. At the time, we wrote:

“India’s high population density, patchwork healthcare infrastructure and air pollution problem heighten the probability that India could become the next global hotspot for coronavirus. If a health crisis does erupt, it may destabilize the country’s already weakened financial system, triggering even bigger capital outflows from Indian assets than we've seen year-to-date.”

Recent data points and developments have only reinforced our concerns. As we had predicted, India has become a coronavirus hotspot and the country’s healthcare infrastructure is overwhelmed and sucking up limited economic resources. At the time we launched the theme, India had about 700 confirmed COVID-19 cases. By the end of June, India’s reported case count had crossed the 500,000 threshold and, as of last Friday, India had over 1 million COVID cases, with infections continuing to rise rapidly.

It is unlikely that official statistics reflect the full scope of the outbreak: India has conducted about eight tests for every 1,000 people, compared with 127 in the United States. Jayaprakash Muliyil, a leading Indian epidemiologist, believes that India’s total number of cases will eventually eclipse that of the U.S., especially as infections move from cities to the country’s vast hinterland where the health system is even less prepared to cope.

Meanwhile, it has not escaped MRP’s attention that a growing number of developing countries -- from Pakistan to the Philippines, Brazil to South Africa -- are exhibiting the same vulnerabilities as India.

New Pandemic Epicenter 

The epicenter of the pandemic has been shifting throughout the year. Initially, the epicenter was in China, where the virus first emerged. Next, it shifted to Europe and then to the United States, which has had the most infections globally. Lately though, the virus has been surging across Latin America, South Asia, and Africa. 

After the United States, with its 3.7 million infections, the next seven highest case counts are in Brazil (2.05M), India (1,08M), Russia (772K), South Africa (351K), Peru (346K), Mexico (331K), and Chile (329K). Combined, these seven emerging market (EM) countries have recorded over 5 million infections to-date. Whereas they comprised only 5% of the world’s cases three months ago, today they account for 36% of the world’s 14M infections. 

MRP’s conclusion is that emerging markets will become the new focal point of the pandemic after infection rates in the United States begin to stabilize. Indeed, we believe emerging markets, with the exception of early-hit countries like China, are still in the early innings of this health crisis. The fact that the curve of COVID-19 infections is steepening in places like India, South Africa, Mexico and Colombia only reinforces this point. 

Dr. Carissa Etienne, head of the Pan American Health Organization, has warned that the virus is spreading "exponentially" in many parts of Latin America. This explains why the number of deaths in Brazil, Mexico and Peru has been doubling roughly every three to four weeks. 

In the Middle East, the number of cases reported in June alone was higher than during the previous four months combined. WHO Middle East director Ahmed al-Mandhari says the region is entering “a critical threshold,” having exceeded 1 million cases and 25,000 deaths. Over half of those are in three of the region’s most populous countries: Iran, Egypt and Saudi Arabia. 

Furthermore, the official global tally fails to properly capture infection rates in many other emerging countries where cases are vastly under-reported due to the fact that testing is less accessible to the general populace. A half-million confirmed COVID-19 cases have been reported across the entire continent of Africa, yet South Africa alone makes up a majority of these reported cases, which suggests a gap in testing. Matshidiso Moeti, the World Health Organization’s Africa chief, recently noted that the true number of cases among Africa’s 1.3 billion people is unknown as its 54 countries face a serious shortage of testing materials for the virus. 

The Vaccine Factor

The arrival of a vaccine would certainly mark a tipping point for fighting the pandemic, and researchers worldwide are working around the clock to develop one, as evidenced by this COVID-19 vaccine tracker. Experts estimate that a fast-tracked vaccine development process could speed a successful candidate to market within 12-18 months, if the process goes smoothly from conception to market availability.


A number of groups, including the WHO, are focusing on ensuring equitable access once a successful vaccine comes to market. Seventy-five countries have submitted expressions of interest to protect their populations and those of other nations, rich and poor, through joining the COVAX Facility, a mechanism designed to guarantee rapid, fair and equitable access to COVID-19 vaccines worldwide.

Still, there is much debate as to whether every country will indeed have equitable access when the time comes. Some experts, including virologist Klaus Stohr, believe that the world will initially be divided into two groups: Those with vaccines and those with no vaccines. As Stohr points out, there may be half a billion doses of vaccine available by the end of this year or beginning of next year, however, the world’s population is 7.5 billion. So, all good intentions aside, vaccines will not be immediately available for the majority of the world’s population right away.

The likely scenario seems to be that, industrialized nations that are able to produce vaccines on their soil will claim first dibs on access. Since a rollout in wealthier countries could take up to six months, as they prioritize their vulnerable elderly population and first response workers, emerging market countries that have less deep pockets, huge populations, and rickety health-care infrastructure will have to wait until sufficient quantities of vaccine doses are produced globally for widespread distribution to their people. In the interim, COVID-19 case counts will continue to surge in the emerging markets.


New MRP Theme: Long Emerging Markets Healthcare

In light of the challenges facing developing nations, MRP has decided to recalibrate its India theme by broadening the focus beyond just one country so as to include the whole emerging market segment. We have also determined that a better way to gain exposure to the recalibrated theme is through healthcare stocks in emerging markets, as we expect demand for healthcare services and products to rise in those markets until the pandemic is contained. 

Accordingly, MRP is closing its Short India theme and initiating a new theme in its place: Long Emerging Markets Healthcare. 

We will monitor the new theme via the KraneShares Emerging Markets Healthcare Index ETF (KMED), which tracks a market-cap-weighted index of emerging-market firms in the healthcare sector. The fund’s holdings span the full market-cap spectrum, and include companies involved in pharmaceuticals, biotech, healthcare administration, and medical equipment. 

EM Healthcare (KMED) vs Emerging Markets (EEM) vs S7P 500 (SPY)