DBS says traditional Chinese medicine, some textile firms safe bets in shaky market

In a declining market, big banks or insurers may no longer be the safe bets and small to mid cap Chinese medicine producers and textile makers may bring good returns.

“It is high time people got pickier, especially when they are considering putting money into specific industrial sectors,” said Dennis Lam, a senior vice president and research director with DBS Vickers, suggesting investors employ a “bottom up” approach and start to look into individual scrip.

DBS Vickers is locking its sight on two companies that produce concentrated Chinese medicine granules (CCMG) despite the fact the country’s medicine prices are falling and profits in pharmaceutical companies have shrunk due to the evolving finances in healthcare.

At the centre of the reform is the phasing out of a 15 per cent mark-up that Chinese public hospitals normally slap on drug sales to finance roughly 40 per cent of their budget.

But Beijing excluded from the drug list in the zero mark-up campaign CCMG makers, which should encourage public hospitals in China the incentive to promote CCMG to their patients.

As a robust part of their culture, Chinese people also tend to take traditional herbal medicine to prevent or cure some minor diseases, delivering a vast and sticky customer base to companies in this sector.

“That is likely be translated into an estimated 30 per cent compound annual growth for this market from 2014 to 2019,” said Mark Kong, a senior analyst with DBS Vickers. He added the two biggest winners should be state-owned China Traditional Chinese Medicine and Hong Kong-based Pure Pharma.