Page 9 - DIY Investor Magazine - Issue 28

OPPORTUNITIES FOR HEALTHCARE INVESTMENTS Thanks to a worldwide pandemic, it’s of no surprise to investors that healthcare offers a myriad of opportunities for future stock picks, from private healthcare to device manufacturers, testing service suppliers to front-edge pharma invention. Recent portfolio addition KingMed Diagnostics is the leading Chinese medical diagnostic information services provider, with a long growth roadmap and potential to be a global player. Another new holding is Roche Biologics, which supplies contract research and facilities for biotech development, giving generic exposure to the burgeoning biotech sector. GROWTH IN THE ENERGY SECTOR Another prominent theme is the growth, in many parts of the emerging world, of electric vehicles – and the strong performance of companies in the sector, whether producers of vehicles themselves, or linked products such as batteries. Electric vehicle adoption will accelerate further as supportive government policies become mandatory, and especially when price parity is reached with renewable energy. Likewise, there is much promise in the renewables space, especially solar power, which will of course come at the expense of traditional energy providers. Forey says this ‘will produce some enormous losers from companies whose business models become obsolete – and enormous winners too.’ THE ADVANCE OF DIGITAL BUSINESS MODELS Digitalisation is a key architect of a K-shaped future, and creator of winners and losers across the whole corporate sector. The advance of digital or internet-type business models in emerging markets – led by portfolio holdings such as Tencent – is by no means recent, but the pandemic-induced step- change in consumer preferences and corporate behaviour has transformed this movement from evolution to revolution. ‘DIGITALISATION IS A KEY ARCHITECT OF A K-SHAPED FUTURE’ ‘It’s really hard to overstate how significant this is,’ says Forey, who compares the game-changing ability of digital companies to disrupt entire industries – ‘even in businesses we thought were unchanging and long-lasting like consumer staples’ – to Amazon’s toppling of the traditional high street business model. E-COMMERCE GROWTH IN EMERGING MARKETS Ecommerce is one theme associated with digital business models – and a huge beneficiary of the migration of consumer preference to online services during the pandemic. One name to watch is trust holding, SEA, a leading platform in markets such as Indonesia and Thailand, which integrates ecommerce, online gaming, and digital financial services. Another is Chinese internet tech company, Netease Games, which Forey describes as ‘fantastically cash-generative’. Neatease is a leading player in esports – an industry whose enormous scale in Asia, and potential for growth elsewhere, some investors have been slow to understand. ‘THE EMERGENCE OF FINANCIAL SERVICES BUSINESSES OPERATING AS SOFTWARE COMPANIES’ EMERGING CHANGES IN THE FINANCIAL SERVICES INDUSTRY Finance is another area in the early throes of digital disruption. Forey explains: ‘We’re seeing the emergence of financial services businesses operating as software companies – whether that’s in clearing, or digital payments. This is of great interest to us as investors because we think there could be a big profit shift within certain parts of the financial services industry as business models change. B3 - the Brazilian Stock Exchange – is one such example. To those wondering how a stock exchange has a similar model to an ecommerce company, Forey explains that stock markets are ‘really electronic marketplaces - not so different to Amazon except that they enjoy a degree of regulatory privilege and have naturally monopolistic characteristics.’ 9 DIY Investor Magazine | Apr 2021