Beyond the crisis, we see strong prospects for Health Care to outperform the market for three main reasons: existing tailwinds from the COVID-19 pandemic, consumer trends in emerging markets (EM) and prospects for future spending on health care infrastructure globally.
In early 2020, the Health Care sector faced a high degree of uncertainty tied to the US presidential election, the lingering effects of the opioid crisis and drug-pricing practices. As we emerge from the COVID-19 crisis, however, health care will likely find itself in a much more favorable environment. The Democratic Party in the United States is poised to nominate centrist Joe Biden (rather than Social Democrat Bernie Sanders) as its presidential candidate, alleviating some election-related uncertainty. Meanwhile, a newfound appreciation for health care in general may help to create a more favorable legal and regulatory environment for the sector. Although some issues may remain connected to US drug-pricing legislation, we think the crisis may reduce the level of distrust between government and health care executives. In addition, the crisis has revealed large-scale reliance on China as a supplier of medical equipment. Some countries may choose to address this potential vulnerability by building alternative supply-chain networks in the wake of the crisis.
The rise of the emerging markets consumer has been a major contributor to economic activity globally. As average household incomes and urbanization rates continue to climb, more people will have access to health care and the ability to pay medical costs. At the same time, growing wealth and urbanization is ushering in lifestyle issues that are, in turn, fueling non-communicable health problems such as diabetes. To combat this trend, governments in emerging markets are likely to spend more to care for their working-age populations in the near term, and to care for their aging populations in future.
Finally, the COVID-19 crisis brought the lack of health care infrastructure to deal with future pandemics into sharp relief. Figure 4 shows data from the World Health Organization (WHO) on health-related capital expenditures as a percentage of GDP. For high- and middle-income countries, investment in health care infrastructure went down by 7 percentage points and 12 percentage points, respectively, between the years of 2009 and 2017.1 The situation is even more dire in low-income countries, where health-care infrastructure spending has remained flat despite rapid population growth. The COVID-19 crisis is likely to bring attention to these shortfalls and encourage governments to increase their health care spending.