China Medtech: Three tailwinds are lining up; is a rotation into medtech in place?

We believe China Medtech is entering a rotation window. Mindray, Snibe and United Imaging have outperformed sharply over the past month, up 14%, 20% and 9%, respectively, versus a 16% decline in the HSBIO index, a flat CSI 300 Healthcare index and a 2% gain in the HSI. Strong 3Q results and improving domestic tender activity suggest the long-awaited tender-to-revenue conversion is taking hold, with the recovery broadening across major medical device and equipment categories. At the same time, Anhui's tiered equipment VBP model and the NHC's emphasis on quality and lifecycle value over simply the lowest price in the VBP should favour scaled technology leaders such as Mindray. We also believe the Medtech subsector could be benefiting from a rotation in the Chinese healthcare sector towards less geopolitically exposed names. Hence, three tailwinds, including improving earnings visibility, a more rational procurement framework and lower geopolitical sensitivity, are making China Medtech in