Morning Note: Market news and an update on the Healthcare Sector.
Market News
The FOMC minutes showed Jerome Powell had some pushback on the outsized reduction last month, with some policymakers favouring a smaller move. However, a 'substantial majority' favoured large cut. Today’s key US CPI inflation data is expected to come in at 2.3%. The 10-year Treasury yield moved up to 4.07%, while gold drifted to $2,611 an ounce. US equities were firm: S&P 500 (+0.7%); Nasdaq (+0.6%).
In Asia this morning, equities also rallied – Nikkei 225 (+0.3%); Hang Seng (+2.9%); Shanghai Composite (+1.3%) – after the PBoC kicked off a 500bln yuan ($70.6bn) facility to aid the stock market. Meanwhile, hedge funds sold a record amount of Chinese shares Tuesday and added short positions, Goldman said.
The FTSE 100 is currently trading 0.3% higher at 8,267. Companies trading ex-dividend this morning include Kingfisher (1.23%), Taylor Wimpey (2.99%), Tesco (1.18%), and WPP (1.95%). The FT reports that HSBC aims to save as much as $300m in restructuring plan. The RICS UK House Price Index come in at 11 for September, ahead of the 10 estimate. Sterling trades at $1.3078 and €1.1955.
French PM Michel Barnier’s government will unveil its budget today, in what’s expected to be an initial course of shock therapy to tackle swelling deficits. Ministers have already flagged €60bn of spending cuts and tax increases. And that’s just a first step in getting the budget gap within the EU’s 3% limit by 2029.
Source: Bloomberg
Industry Update – Healthcare
Last week, Polar Capital Global Healthcare hosted a webcast in which the manager outlined his views on the sector.
One of the most powerful drivers of industry growth is expected to be new product cycles driven by the improvement of R&D productivity – 2023 was the second biggest year for new product approvals (55) in the US for 30 years. The manager is particularly positive on products for obesity, atrial fibrillation, Alzheimer’s disease, and respiratory diseases.
AI and machine learning will be another positive – Nvidia categorises healthcare as one of its biggest potential verticals. However, Polar believes adoption is likely to be slowed by industry regulation and it will be some time before AI speeds up the drug discovery process.
Growth in emerging markets will also be a key long-term driver as a result of increased expenditure on healthcare. Compared to the US (which spends $12,555 per person on healthcare) and the UK ($5,493), developing countries like India ($212), Brazil ($1,573), and Mexico ($1,181) spend a fraction.
The manager also highlighted improved industry utilisation – significant growth is needed to clear record patient waiting lists. Demand is already picking up in areas like MedTech and healthcare equipment.
In the short term, US politics is providing some uncertainty. However, Polar believes a split Congress will be the most likely outcome and that would be positive for the sector.
Increased industry consolidation is expected to continue, with M&A picking up over recent quarters. Larger pharma/biotech companies are buying smaller players, with the driver being the revenue gap expected between 2025 and 2030 as a result of parent expiries.
Given the positive industry backdrop, the manager believes valuations across the sector are attractive – it trades on a 10% discount to the S&P, when at times in the past it has traded on a premium. The manager believes a premium is currently justified given the sector’s robust and consistent earnings growth, and therefore sees a good chance for medium-term share price appreciation. The mid/small cap part of the sector is trading at a larger discount and, as a result, the manager is overweight this part of the market relative to the large cap stocks.
Source: Bloomberg