China to drive private market opportunities in Asia as healthcare, consumption offer pickings: HarbourVest

Private markets firm HarbourVest sees investment opportunities in Asia including China’s healthcare services and consumer industries, with the country’s declining demographics and uptick in retail spending lifting demand for related products.

Trends like the reshuffling of global supply chains in the year ahead will also throw up opportunities in Japan and South Korea in high-end manufacturing, while regions like India and Southeast Asia will benefit in more labour-intensive industries like textiles.

“We think that Asia will see very good growth in 2024, and that growth is very much underpinned by China,” said Kelvin Yap, managing director at HarbourVest, a global private markets firm with over US$117 billion in assets under management. China, Asia’s single largest economy, will grow at around 5 per cent, “a very high number,” he added.

Healthcare services will be a main area of focus for HarbourVest’s China investments this year, as the country’s ageing population and growing household income drive demand for “more premium and better healthcare services”, including outpatient treatment and elective surgeries.

Consumption will be another key investment theme for the firm, despite muted confidence and a slow rebound in spending in recent years. “I know consumption has not exactly bounced back, but if you look at big-ticket items such as motor vehicles, sales are actually at an all-time high, suggesting that there is still buying power,” said Yap.

He also pointed out that a trend towards “consumption downgrades”, where pessimism about the country’s economic outlook is making consumers adopt a more frugal lifestyle, will be more than compensated for by an uptick in volume, which will in turn drive up the total value of consumption.

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“So for any products that tend to be more [mass-oriented], there is a good value proposition, and where their price is a fraction of a much better product, we see opportunities – [even if] they might not enjoy the same brand recognition,” he said.

Another key factor that makes China’s consumption and healthcare services attractive is that these sectors are less susceptible to regulatory scrutiny, compared to the more sensitive areas like hard tech and semiconductors, which the firm tries to stay away from, Yap said.

HarbourVest’s China portfolio consists of investments in local private equity and venture capital funds, as well as direct investments in Chinese companies alongside local fund managers.

Elsewhere in Asia, a trend towards supply chain diversification, where companies seek to shift manufacturing and investments out of China and into other promising geographies as a hedge against geopolitical risks, is driving opportunities in the region’s logistics companies.

“Supply chains are being unwound and re-engineered,” he said. “What that means is that you’re going to have a lot more disparate supply chain. There’s going to be a lot more logistics involved in moving, assembling and shipping intermediate and finished goods. As companies are rejigging their supply chains, there will be a lot more demand for logistics services.”

India and Southeast Asia will emerge as winners as a result of this shift, outperforming at the lower-end of the value chain and in more labour-intensive industries such as textiles, while countries like Japan and South Korea will take the lead in high-end manufacturing, he said.

What that means for Chinese companies is that to stay competitive, they can either stay in China and move up the value chain, or diversify into other markets while retaining industry focus, said Yap. “Since supply chain shifts do not happen overnight, we’re also likely going to see a combination of both strategies among Chinese companies.”