Healthcare a fashionable concept in Chinese investments

Charlie Awdry, manager of the Gartmore China Opportunities Fund, maintains that healthcare is a fashionable concept in Chinese investments at the moment.

With valuations moving up to elevated levels in the sector, he believes that the Chinese R&D company, WuXi PharmaTech, represents a valuable franchise and is a good example of a company at the cutting edge of its industry. It is companies like WuXi which Charlie specifically targets for inclusion in the fund.

Recently the US pharmaceutical company, Charles River Laboratories, has announced the acquisition of the WuXi PharmaTech. The deal is valued at US $1.6bn. WuXi currently represents a 90 basis points holding within the China Opportunities Fund.

Charlie believes that this acquisition is an interesting development for a number of reasons. Firstly, the acquisition demonstrates that Western research companies now have increased confidence in China in terms of reliability and high quality of research. In addition, Chinese companies are at the forefront of outsourced global pharmaceutical research with good product design, technological development and reliable supply. As a result, we are witnessing a transition of Chinese companies moving away from their traditional low-end manufacturing businesses to high-end technological products. In addition, Charles River is one of many research companies that are looking to reduce costs by outsourcing much of their R&D to China. Evidently, Charles River is confident that China has reached the level required to be successful in the pharmaceutical industry whilst maintaining competitive pricing.

However, given recent poor relations between China and the rest of the world, it is questionable whether the acquisition will be allowed to go through. News of Google's exit from China and claims of executives at Rio Tinto bribing Chinese officials have not helped the situation. This deal will be a test of China and US relations.

Healthcare is a fashionable concept in Chinese investments at the moment and consequently valuations have moved up to elevated levels in the sector. Charlie believes that WuXi represents a valuable franchise and is a good example of a company at the cutting edge of its industry. It is companies like WuXi which Charlie specifically targets for inclusion in the fund.