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Goldman Sachs Backs Emerging Markets: MedTech Stocks in Focus

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Emerging market investment has taken a backseat of late, thanks to the nonstop blows to the economy. The lingering geopolitical tension in Gulf, debt and policy related hazards in Latin America or the missile tests in North Korea have led stock investors to reconsider their outlay in these markets, earlier proclaimed to offer better growth opportunities than the United States.

Going by the MSCI Emerging Markets Index, the last five-year annualized growth rate was just 5.02%. On the other hand, GDP per capita growth rate over the last five years for the United States was 5.83% (International Monetary Fund World Economic Outlook Database).

In the face of such adversities, Goldman Sachs’ statement to Bloomberg last week, addressing emerging market stocks as world’s best bet, has created quite a stir in the investment world. According to the report, following the selloff in February and unlike other market corrections, investors are keen to put money in riskier assets of the emerging economy this time around.

Although the MSCI Index has not shown any significant improvement since then, the comment by Sheila Patel, chief executive officer of International GSAM, has forced investors to think all over again before taking their assets out of this market.

Going by the Bloomberg report, Goldman Sachs is particularly betting on Indian healthcare firms, Mexican consumer stocks and Argentine debt. “She expects India’s government will boost spending on public health under Prime Minister Narendra Modi. And although political risks can’t be ignored investors’ pessimism toward Mexico and Argentina is overdone”- the report says.

Emerging Market Healthcare Scenario Way Better Than the United States

While Patel particularly talked about the growing prospects of the Indian healthcare market, data shows that the prospects of the broader emerging market are equally encouraging. On the contrary, the healthcare scenario in the United States is muddled.

A survey report by Gallup Analytics last July revealed that U.S. adults cited healthcare as the second major problem faced by the country under the new presidential administration. Following the new healthcare reform announcement in December, a Gallup poll the next month stated that the past decade marked the biggest increase in the uninsured rate. Whatever the new healthcare reform may bring in, the near-term scenario remains pretty unclear as of now.

Meanwhile, with exploding population, rising middle class and increasing governmental awareness of health issues, emerging geographies are facing huge demand for modern but cheaper healthcare options. Going by a report in The Guardian, International Finance Corp’s (IFJ) data shows that developing countries account for 80% of global deaths from chronic diseases indicating enormous market opportunity.

Emerging Market Openings for MedTech

Per a recent BCG report, the share of emerging markets, which is currently less than a quarter of global MedTech revenues, is likely to increase to nearly one-third of revenues by 2022. The MedTech market in China, currently the second largest in the world, is projected to grow about 13% annually from 2015 through 2022. India, the fifth largest MedTech market in the world, currently records 17% annual growth. At this pace, India may emerge as a strong competitor to Japan and Germany by 2022.

Among other emerging geographical regions, Latin America, even in the face of economic stagnation, holds enormous potential. Per a January 2017 report by MedTech Intelligence, Central and South American nations significantly increased per capita spending on healthcare between 2008 and 2014.

Given the huge potential in these regions, long back, Johnson & Johnson (JNJ - Free Report) had set up manufacturing and R&D centers in India, China and Brazil. The company’s emerging markets medical device segment continues to grow three to four times faster than the developed markets.

Abbott (ABT - Free Report) continues to lead the emerging market investment trend with about 50% of sales from this region. In the recent quarters, sales in key emerging markets were up in double digits, driven by strength in BRIC as well as strong growth in several countries throughout Latin America, including Colombia, Mexico, Peru and Argentina.

At Medtronic (MDT - Free Report) , in the second quarter of fiscal 2018, businesses in China, Latin America, and Southeast Asia showed sustained strength, growing in double digits. Overall, Medtronic’s long-term outlook on emerging markets is encouraging.

Boston Scientific’s (BSX - Free Report) emerging markets’ business registered 13% organic growth in fourth-quarter 2017, reflecting a significant increase from 8% growth in 2013. Business in China was once again remarkable (up 19% year over year).

Conclusion

The growth pace of the emerging market has declined from the pre-financial crisis years. However, this market has historically played a crucial role for large corporations by hedging their international trade risk.  According to a BCG report, going forward, emerging market GDP is projected to grow around 2% faster than that of developed economies. The market will account for around 40% of total consumer spending — more than $20 trillion by 2020. From an investor point of view, it will be imprudent to disregard the immense growth potential of the emerging economy due to the occasional rough spots.

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