It has become a common belief among economists — coming out of 2020 Global COVID Crisis (or GCC), we will see fiscal stimulus might start to take its desired effect. So the notion goes, once fiscal largesse is launched, a 'faster transmission mechanism' to economic growth will take place almost instantly. (It's being nicknamed helicopter, for a reason).
Though amid the benefit on triggering inflation, fiscal side might have unwanted drawbacks for everyday folks: A young married couple buying a house, for instance, might turn from a hard task to impossible since the housing prices have gone through the roof — pun intended. This has been exhaustively discussed in our college textbooks.
So, knowing this as a common belief, indeed, why the cat-broker bother discussing it this morning? That is because the infamous dynamic we are familiar with a decade ago has almost repeated itself.
An average home in US, for instance, is now worth around $450,000; it has doubled within a year, to level almost rival the bubblicious event in 2008. For perspective, a decent house in US is almost four-fold the price of what we have in Indonesia. Imagine that...
SocGen’s pundit, Albert Edwards describe this property bubble will "stun a lot of [folks]", as the biggest we have seen in a while. Exaggeration aside, he continued describing that central banks are to blame, and "an exact example how powerful Fed can easily orchestrated inflation", but how "powerless once they are asked to retract" or normalize.
"Easy money comes at a heavy price [and] central banks have become slaves to the bubbles that they blow.” - Albert Edward
US May housing report then becomes an overarching point for us, market participants who want to search signs of inflation; we can convinced to say that this is the elephant in the room, a byproduct of fiscal policy. At this stage, even a regular family in US are currently struggling to rent a house, let alone buying it.
As prices are surely will beat the record high, this starts to be made worse since construction related products such as lumber prices also went ballistic. One Reddit parody claiming "forget Bitcoin miners. The lumberjack is the real billionaire" starts to make even more sense!
Now if you think what is happening in housing market is bad, you haven't seen it all. We think it is equally important to highlight other daily aspects that central banks has disrupted through stimulus. Healthcare for instance, is another heated topic.
Borrowing the famous chart from Carpe Diem, it makes sense to conclude that: whatever the amount of inflation is happening in housing market today, the magnitude occurring in hospital side is arguably four times much worse. Makes us wonder, is the same bubble also occurring in healthcare industry?
Bubble in Formation: Post-pandemic spending might shift heavily towards health related products/ services, accelerating inflation pocket
By now we must have realized that the epic surge in medical cost does not exclusive cover the US market. Pre-pandemic, most nation has already grappled with unaffordable healthcare system, as gross global medical trend price increase was an average 8% in 2020. (If you compare it with general inflation that was only about 3.1%, you can see the huge gap in between).
From the 8%, the DM countries price growth was generally lower (US and Canada healthcare inflation are about 6.5% and 4.1% in 2020), while EM regions contributed most of the increase. Research piece from Aon instead highlight how Asia-Pacific medical cost that accelerated by whooping 8.7% last year! While Brazil and Indonesia are expected to surge for mid-teens percentage point, at least.
There are a lot of reasons for these, and they are the health issues that we are all very familiar with. To wit from Aon: "Heart disease was the biggest cost driver, followed by cancer and hypertension" — the byproducts of society that was previously lacking attention to healthy living. We think, the corrective lifestyle might soon occur post-pandemic hit.
We imagine that coming off the crisis, consumers demand for hospital services and focus to healthcare will be much bigger than pre-pandemic era. It is likely that spending towards health will universally take away the shares from other pockets, as the pundits suggest. We are confident that there are a lot of opportunities to take from asset allocators perspective.
From these reasons, I view Jennifer's piece on healthcare sector might have the relevancy from this structural change. Indonesia is indeed a huge market for healthcare, no matter which angle you try to look at it: from market size, to early implementation of universal healthcare, or even to compare the readied infrastructure such as number of beds, we are extremely left behind to other countries.
This implies how the healthcare stocks traded in JCI hasn't reflected the overall industry prospect that actually increases. Multiples, in fact, has been shrinking, while most hospital stocks reached record EBITDA on its first quarter, yet to price in increasing certainty that government's healthcare program might significantly improve (refer to Jen's section on BPJS recent budget surplus).
For Jennifer, she sees that stocks such as Hermina (HEAL, TP 6,800/sh) might have a chance of outperformance across the industry. To capture the overall industry shift, she thinks the company scale, coupled with its exposure to COVID handling, and capturing JKN program might boost the overall profit growth.
Meanwhile, we also think other stocks such as Rumah Sakit Bunda (PT Bundamedik, BMHS, soon listing July 6th) with niche focus e.g. woman and children might also have a prospective outlook. The firm is focusing on IVF business that considerably offer a higher IRR, and yet having a higher growth momentum comparing to general administration.
For Jennifer's piece, you can have a read more here: http://bit.ly/healthcare_initiation
Cheers!
Boris, the Stock Broker 🐾
Sucor Sekuritas
