China's is about to propel years of growth for an industry that's already going strong.
We're looking at growth of 27% this year alone. And that's regardless of China's overall economic condition.
Best of all, the growth will benefit a small group of U.S. companies that were already set to do very well for rest of the decade. Surging demand from China and other emerging markets is just going to turn a good investment into a great investment.
Here's the story.
China's Next $1 Trillion Industry
China has aggressively been increasing government spending for years. And it's going to help out a few sectors keep growing.
One of China's focuses on increased spending - and the one that gets the most international attention - is its military. China is set to increase its defense budget by 10.7% this year.
The country has also committed to steady increases education spending too. China plans to up education spending by 9.3% this year.
But the big focus in China's government spending and will be the focus for the next few years will be healthcare.
The Chinese government increased its healthcare spending by 16% in 2012. And it has budgeted a 27% increase this year.
Yet despite the increases, it's still only spending $41.8 billion in healthcare this year.
That's not much considering population size and that official reports claim 95% of Chinese have either access to healthcare (rural) or health insurance (urban).
Once private and government healthcare expenditures are combined the total was $350 billion in 2010, the last year full statistics were available.
That's a total of a mere $315 per Chinese citizen.
With spending levels that low, there's room for big growth in Chinese healthcare spending. And that growth is starting to really taking off.
In fact, researchers at McKinsey & Company have forecast China's healthcare spending to reach $1 trillion by 2020.
It will take up annual increases of 16% per year in healthcare spending to reach that level.
Still, even then, with population growth, the total spending per person will be well under $1,000 per person per year.
In short, for Chinese healthcare spending, the only way is up.
And here's where the best opportunities are for investors.
Emerging Market Growth without the Risk
China is just part of the growth equation set to make the medical device industry one of the big winners over the next few years. There are many more countries with big populations, are getting richer, and will want and need more healthcare services and technologies.
Look at Brazil. A recent survey by McKinsey found 50% of Brazil's growing middle class is willing to pay more for healthcare.
India is another example. Right now only 25% of the 1.2 billion Indians have health insurance. This is expected to rise to 45% by 2020.
The country is demographically a younger one too. But it's also expanding its life expectancies too. That means more chronic conditions. For example, one recent study found 45 million Indians have congestive heart failure. This number is expected to rise to 60 million by 2020.
As you can see, this is a big opportunity. But the question is how to play it safely. Here's our take.
Right now we are hesitant to recommend direct plays on emerging markets right now. There are so many which have turned out to be complete frauds especially in China.
At The Cheap Investor we've sidestepped all of the frauds as well . But there are still a lot of risks posed by direct investments in emerging markets. Right now those risks are rarely worth taking. There's no bull market to make up for the risks in emerging markets.
So that's why we have to look for opportunities in North America. And there isn't a better place to be looking for medical device investments.
Medical devices are one thing the United States does best. In the U.S. there are more than 6,000 medical device companies supporting 411,000 workers.
Canada has a strong presence as well. Canada has more than 1,500 medical device companies with 35,000 workers developing, designing, and building medical devices.
Together, the U.S. and Canada command 46% of the global medical device market.
It's going to stay that way too. The American Medical Technology Association reports 12 percent of sales are reinvested in research and development. That's four times higher than the average manufacturing industry.
A healthcare analyst at research firm Frost & Sullivan said, "The U.S. medical device industry is steering toward taking healthcare to the next level through advancements in technology relating to artificial organs, biomaterials, robotics, electronics, and instrumentation."
They're right too. And it's all coming together at just the right time to unleash a true bull market in medical device stocks.
The Recipe for Growth
In the end, what the medical device industry is facing is a really simple proposition.
Domestically, the U.S. is getting older, healthcare more expensive, and the only solution will be more efficient solutions. More technology, better devices. That's been the trend forever in healthcare and it will continue.
Internationally, the ongoing emergence of a middle class around the globe with more disposable income has and will continue increase demand for better healthcare. Medical devices will be a big part of meeting those needs.
And in most of those countries, especially China, the population is getting older, not younger. That will further add to growth and demand for medical technologies.
In your next Profit Alert we'll lift the veil on the The Cheap Investor methodology, how it recently found a handful of high-potential medical device stocks, and detail the three elements of a winning medical device investment.
Everything is looking up in this sector and the time to move is now.
Yours in Success,
The Cheap Investor
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