Greenwoods plans to start hedge fund tapping China health care sector

Greenwoods Asset Management plans to start a hedge fund tapping opportunities in the health care industry in China, the world's third-largest pharmaceutical market.

Greenwoods China Healthcare Fund will buy stocks of leading drug companies and health care providers, said Joseph Zeng, a partner of the Shanghai-based manager of US$7 billion of assets. It will short shares of companies that stand to lose amid the nation's medical reforms, he added.

Health-care spending in China is projected to grow nearly 12 per cent a year from 2014 to US$892 billion by 2018, Deloitte Touche Tohmatsu said in an annual outlook. The industry has drawn investors such as Hillhouse Capital Management, the Yale University endowment-backed manager of US$20 billion of assets, which partnered with Mayo Clinic for a China venture.

"The valuation of many stocks in the sector is higher than other sectors," Zeng said. "But we can still find good entry opportunities when there is any sell-off, or before the potential of a company is fully realised by the market."

The MSCI China Health Care Index is valued at about 23 times this year's estimated earnings, the most expensive behind gauges tracking the country's information technology and consumer staples companies.

China is likely to become the world's second-largest pharmaceutical market by sales as early as this year, from third, according to a report by consulting firm Bain. The nation's emerging health issues, resulting from pollution, obesity, an ageing population, the relaxation of the one-child policy and the opening up of the hospital business to private investors will provide investment themes, Zeng said.