Beijing is throwing its weight behind a specific investment sector — here’s how your portfolio can be a part of it
The biggest gains come from identifying a massive trend that’s reshaping society … investing early based on strategic, well-researched analysis … and then simply being patient.
That’s Matt McCall’s investment philosophy — and it’s hard to argue with the results.
For instance, take the legalized marijuana trend.
Matt has been a leader in this space for years now — long before the majority of analysts jumped aboard the bandwagon. This advanced time and experience in the market has given Matt an edge, one that’s evidenced by his track record.
There’s Turning Point Brands, up 52% since Matt added it to his portfolio … Elixinol Global, up 131% … and Innovative Industrial Properties, up 171%. The rest of his portfolio is littered with winners as well.
But as respectable as those gains are, we expect they’ll pale when compared to the returns we’ll see from these investments five years from now. That’s because we’re still in the early stages of legalized marijuana’s explosive growth.
Today, I want to put another trend from Matt on your radar …
Practically no one is looking at this right now. If the marijuana industry is on the 10-yard line with 90 yards in front of it, this trend is all the way back on the 1-yard line. That said, it has the potential to be enormous … and in just two years. Hypergrowth on steroids.
As I write, Matt is investigating the opportunity in person — what we call “boots on the ground” research. This is how Matt has identified many of his marijuana winners so far. It’s what separates good analysts from great analysts.
You see, anyone can pick up a report on a company or browse the internet for research … but very few analysts will pack their bags, fly across the globe, and then meet with industry and company leaders to decide for themselves whether an opportunity warrants an investment. But this is how you find the real winners that lead to long-term wealth.
That’s exactly what Matt’s doing right now.
So, where is he?
Behind the trade-war headlines, there’s a Chinese industry poised to experience exponential growth over the next two years. The reason why we can say this with confidence is because this industry has the backing of the Chinese government. And when Beijing throws its weight behind something, we’d be foolish not to pay attention.
So, in this Digest, let’s look east and consider a sector that’s sleepy today, but could become massive tomorrow.
***The “100x” opportunity backed by the Chinese government
If you just raised an eyebrow, I get it. The Chinese biotech industry has never been on my radar either. Why should it be?
Well, Matt’s April issue of Early Stage Investor tells us why. It all boils down to numbers.
Consider this …
In 2020, China’s economy is projected to be $15.7 trillion. Meanwhile, Beijing wants the biotech sector to be worth 4% of total GDP, which would mean a sector valuation of roughly $627 billion.
So, how big is biotech now?
Just $5.4 billion.
This means that in order to hit Beijing’s desired sector-weight number, the biotech industry needs to grow by 116-times …
…in about two years.
***Beijing’s backing of the tech industry shows us what’s possible
To me, 116x growth in two years sounds all but impossible. But I’m not factoring in the role that the Chinese government plays in this.
I’m going to turn to Matt to explain:
To be honest, that kind of dizzying growth in two years would be pretty unrealistic in a free economy, but China is different …
The push in biotechnology isn’t the first time the government has backed an industry with what appear to be unrealistic goals. Ten years ago, China’s government was determined to grow the nation’s technology industry. It was a great opportunity for investors.
At the same time, a little-known technology company was starting to gather assets and extend its tentacles into all aspects of tech. It was a major beneficiary of the government’s support. Today, Tencent Holdings is one of the largest companies in the world. At one point last year, its valuation topped $550 billion. It was even mentioned as one of leading candidates to be the next trillion-dollar stock behind Apple and Amazon.
Tencent rose an eye-popping 67,000% from its IPO in 2004 through January 2018 before it was hit with the Chinese stock market sell-off …
(The Chinese government) is determined to put the industry on the same level with U.S. biotech … and do it in just a few years.
***Part of Beijing’s push into biotech relates to Chinese demographics
The U.S. has 331 million people. China’s population is more than four times bigger at nearly 1.4 billion.
Unfortunately, that means China is dealing with a far greater number of sick people. That’s why the government is funding massive health-care research. For example, take cancer research.
Here’s Matt for more:
In 2015, 4.3 million cases of cancer were diagnosed in China — more than any other country and double the number of cases in 2000. Put another way, 20% of the world lives in China, but it has 30% of all cancer patients.
More than one-third of all lung cancer diagnoses are in China. This is due to pollution and smoking, among other factors. You would think China would have the best treatments due to the sheer number of patients, but that is not the case. The five-year survivor rate in China is 17% lower than the rest of the world.
The demographics show the immediate need for better drugs in China. In 2018, it was reported that about 30 Chinese companies that are working on CAR-T trials were building more than 107,000 square feet of manufacturing facilities for the therapy. The government helps fuel this growth with major subsidies.
By the way, CAR-T is a cell therapy that uses T-cells from a patient that are altered to fight cancer and then reintroduced into the patient’s body. This cutting-edge treatment could ultimately be one of the biggest breakthroughs against cancer.
Matt tells us that there are a couple CAR-T treatments available in the U.S., but the technology is still in the early stages of what it can become.
Back to Matt:
In 2018 there were 116 CAR-T clinical trials in China. That’s more than the 96 in the U.S. and 15 in Europe. When human trials for CAR-T began in 2010 in the U.S., there was nothing going on in China. Today, it has become the leader in CAR-T research. This trend has just begun and will continue in varying fields.
***Matt goes on to point toward another tailwind behind China’s biotech growth: an aging Chinese population
According to Time, 330 million Chinese will be over 65 by 2050. For context, that number is the same as the entire population of the U.S.
Imagine that. A population equal to every man, woman and child in the U.S. older than 65.
China is expected to hit peak population in 2029 before entering a pretty big decline. (This is due to the one-child experiment as well as the population getting older.)
So, what’s the impact of this? Here’s Matt in his own words:
Given the huge need for drugs over the next decade or so, simple economic theory points to a big boom in Chinese biotech. Demand is increasing and the supply is just not there.
***What’s the right way to play this from an investment angle?
Similar to Matt’s approach to the marijuana market, he prefers a “basket approach” with Chinese biotechs. In essence, you spread your investment capital over an entire portfolio of investments, rather than concentrating it in just one or two specific stocks. This provides a level of diversification that helps to safeguard your overall investment.
Matt tells us this method as worked well in the past with biotech stocks.
For example, from the mid-1990s through the high in 2015, the Nasdaq Biotech Index was up 28-times over. And this was a much broader basket than what Matt recommends — plus, the U.S. biotech industry didn’t have the same government support as what we’re seeing in China.
Now, even though a basket approach is called for, I’m going to put one specific biotech on your watchlist — Zal Lab (ZLAB)
This company focuses on transformative medicines for cancer, autoimmune disorders, and infectious diseases. The $1.7 billion company was founded in 2014 and today boasts one of the strongest portfolios of late-stage oncology treatments in China.
As I wrote earlier, China has more cancer patients than any other country in the world. Treatments are desperately needed. With the government behind the fast tracking of oncology drugs, it puts a tailwind behind Zal Lab.
Wrapping up, I think it’s safe to say that Chinese biotechs haven’t been on your radar. But many of the most successful investors in the world play no favorites — they simply go where the opportunities are. And right now, we’re looking at the potential for 116X growth as the Chinese government looks to boost its biotech industry. This is a black swan opportunity — one I hope you’ll take the time to consider.
We’ll continue to keep you updated here in the Digest.
Have a good evening,