The foundation of traditional Chinese medicine is Qi – the life force or energy that flows through a body. If, for any reason, the Qi in your body was to go out of balance or get blocked, one would end up falling ill. A wide range of plant- and animal-based medicines would then be used to unblock those pathways and to restore the balance of Yin and Yang in the body.

While traditional Chinese medicine techniques like cupping and acupuncture gain popularity both at home and abroad, China has been quietly making giant strides in the traditional pharmaceutical and biotechnology sectors. In the past, it applied the principles of scale and an integrated supply chain to manufacture inexpensive generics faster and cheaper than its competitors.

Cut to present day, China’s pharmaceutical industry is on the cusp of becoming a global leader in both drug discovery and development. According to Morgan Stanley, annual revenues from drugs originating in China could reach USD$34 billion by 2030 and USD$220 billion by 2040. Currently, drugs from China account for only 5% of all USFDA approvals, but that is estimated to rise to 35% by 2040. So how did China go from a middling pharma player to the hot house of innovation and manufacturing that we see today?

Broadly, we can trace three key factors that are fueling this boom:

1. Reforms – The comprehensive series of reforms needed to move the needle in this space did not happen overnight. Over the last decade, China has made a deliberate push to move from a large-scale generics manufacturer to an innovation powerhouse by pushing through the following reforms.

• • Increasing innovative drug approvals – In 2017, measures were introduced to reduce the review timeline of innovative drugs to 60 days, increasing the efficiency of the drug development process. The result has been a record 93 drugs receiving first approval from the National Medical Products Administration (NMPA) in China in 2024 with China surpassing Europe and Japan as the second largest country to receive first approvals.
  • Investment inflows – Funding is crucial for innovation and reforms such as 18A listing rules in Hong Kong and the launch of STAR Market (touted as Shanghai’s equivalent to NASDAQ) allowed pre-revenue biotech companies to list and raise money.
  • Globalization – In response to intense competition at home, Chinese pharmaceutical companies have started to spread their wings abroad through strategic partnerships. This is being executed by applying for global approvals for drugs developed in China and through so called out-licensing agreements, where Chinese companies further the development of their unique IP by leveraging the R&D and commercialization network of western pharma giants.

2. Speed – To accelerate development of novel drugs, China’s regulator is proposing to further cut the clinical trial review period from 60 to 30 working days, matching the time line of USFDA. The presence of large pools of patients in Chinese cities further expedites the go-to-market process.
3. Talent – China graduates around five million science, technology, engineering and mathematics (STEM) graduates every year. The recent crackdown in immigration in the United States has led many talented Chinese scientists and professionals (nicknamed “sea turtles”) to return home. The recent announcement by the Chinese government of the K visa program could further accelerate this trend.

This combination of speed, abundance of talent and structural reforms could throw up multiple opportunities in the Chinese pharma space. It is next to impossible to predict which company could win the next out-licensing deal. Similarly, picking the next big biopharma product requires a high degree of technical expertise. Hence our investment in Sunresin New Materials Co. Ltd. (300487 CH) takes a picks and shovel approach to this space.

Sunresin is a specialty resin manufacturer, making more than 200 different types of resin for a variety of applications from purifying water, extracting lithium to serving as an enzyme carrier for drug development including GLP-1 drugs. While its life sciences business makes up about a fourth of its revenue, given the trends discussed above, the growth opportunities and potential runway could be enormous.

The consumables that Sunresin manufactures have high barriers to entry, more stable risk profiles vs. betting on winning drugs and underlying high growth in total addressable market. Its products are used both for upstream synthesis of various active pharmaceutical ingredients (APIs) and for downstream separation and purification that determines the final quality of the drug.

Key trends that underpin Sunresin’s growth include:

1. Growth of the biologics (large molecules) market that is growing faster than the chemical drug (small molecules) market. Biologics production has an upstream API synthesis phase that requires carriers and a downstream purification phase that requires chromatographic media (CM) to capture target molecules.
2. Sunresin produces both upstream carriers (for both large and small molecules) and downstream chromatographic media. Entry barriers are high as both products can make up 15–40% of production cost and are crucial to the final quality of the drug. Switching suppliers by commercial drug makers can be costly and time consuming.
3. Rise of import substitution in China and rise of overseas opportunities from out-licensing deals could further underpin growth.
4. Build out of new high-end life sciences capacity that could support 10x of current sales.

Between its proven products, new capacities and tailwinds from the growth of biologics and the larger China bio pharma sector, we see Sunresin as a key winner in the race to find the new blockbuster drugs on the back of China’s booming pharmaceutical sector.

During a research trip to São Paulo this summer, our team met with the management teams of some of our holdings, with prospective investments and with local investors. We observed that consumer demand in Brazil is stronger than expected, particularly in higher-end categories. Companies we like such as Vivara Participações S.A. (VIVA3 SA) and Track & Field Co S.A. (TFCO4 SA) benefit from this consumer strength and offer a compelling risk reward given where these stocks traded during beginning of the year.

Local market behaviour remains distinctly short term, with high turnover and a focus on the next-quarter results. This is largely driven by the elevated Selic policy rate, currently at 15%, which leads investors to assess opportunities on an absolute-return basis rather than seeking alpha. With inflation near 5%, real yields approach 10%, creating a persuasive risk-free alternative that diverts capital from equities. In turn, local equity managers are adjusting their styles to retain AUM.

Banco Central do Brasil Target for Federal Funds rate (Selic)

Source: Banco central do Brasil

These dynamics reinforce our long-term approach: concentrating on high-quality businesses with durable earnings power and consistent EPS expansion. Looking ahead, with elections approaching and potential rate cuts on the horizon, we expect a reallocation of flows from fixed income back into equities, benefiting companies with strong fundamentals and clear earnings visibility.

Key players in Brazil’s political landscape

Brazil’s political landscape is already taking shape as the country heads toward the 2026 elections. One of the most significant developments is the exclusion of Jair Bolsonaro from contention. His ineligibility through 2030, reinforced by a conviction earlier this month, effectively removes the most polarizing figure on the right. In his absence, the centre-right governor of São Paulo, Tarcísio de Freitas, is emerging as the most likely challenger to President Luiz Inácio Lula da Silva (also known as “Lula”) in a potential second-round runoff. This dynamic sets up a more conventional contest between a centre-left incumbent and a pragmatic, reform-minded conservative.

For Lula, the current year has been a test of political resilience. His approval ratings hit a low point of around 24% in February 2025, but have since rebounded modestly, reaching roughly 33% by September according to Datafolha surveys. The recovery suggests some stability, though his support remains fragile, reflecting persistent dissatisfaction with the pace of economic recovery and concerns about fiscal policy. Nevertheless, the directional improvement offers the president some breathing room as he navigates the second half of his term.

From the perspective of markets, the electoral outlook carries important implications. A Lula re-election would imply continuity in the Workers’ Party approach: a more active state role in economic management, coupled with efforts to demonstrate adherence to Brazil’s new fiscal framework. Investor reaction would likely hinge on whether the government can maintain a credible path to primary balance and on its stance toward state-controlled enterprises such as Petrobras, where governance remains a focal concern. By contrast, a victory for a centre-right figure like Freitas would be interpreted as a more reformist and privatization-friendly outcome. Such a scenario could lower perceived political risk, reduce risk premia and prove supportive for equities and local rates markets.

Mexico rates, USMCA and tariffs

Headline inflation in Mexico remained relatively stable, with the Consumer Price Index (CPI) registering a 3.57% year-over-year increase in August. Preliminary mid-September data suggests a slight acceleration to approximately 3.7%. Inflation expectations continue to trend downward. The Bank of Mexico’s (Banxico) August private-sector survey shows a further decline in median inflation forecasts for both 2025 and 2026, signaling growing confidence in price stability.

On September 25, Banxico lowered its policy rate to 7.50%, executing a 25 basis point cut. The decision was not unanimous, reflecting differing views within the board. Forward guidance remains cautious, as core inflation is decelerating only gradually. Reuters notes that while the easing cycle supports domestic demand and longer-term fixed income instruments, external factors – particularly the pace of US Federal Reserve rate cuts or potential tariff shocks – will ultimately drive risk premiums in Mexican assets.

In 2026, the United States–Mexico–Canada Agreement (USMCA) is scheduled for its first mandatory joint review. At that point, the three countries must decide whether to extend the agreement for another 16 years, renegotiate its terms or allow it to transition into annual reviews. The outcome will directly affect trade certainty and tariff exposure in North America. Currently, approximately half of Mexico’s exports to the United States do not qualify under USMCA’s origin requirements and are therefore vulnerable to a 25% US tariff. Goods meeting the agreement’s rules of origin continue to benefit from duty-free treatment, but non-compliant products face higher costs and stricter enforcement.

In parallel, Mexico has recently imposed tariffs of between 10–50% on a wide range of imports from China, including auto parts, textiles, steel and consumer goods. This move underscores Mexico’s effort to shield domestic industries from low-cost Chinese competition, but also adds a layer of complexity to supply-chain strategies for companies operating across the region.

The 2026 review will thus be a critical inflection point: it could either reaffirm the stability of North American trade or introduce uncertainty through renegotiation and tariff escalation.

If you want to go fast, go alone. If you want to go far, go together. – African proverb

At Global Alpha, we truly believe in having strong, connected teams because we’ve seen how it translates into better performance at work. When team members trust each other, we can push boundaries, test new ideas and endure more uncertainty. So, when we’re looking for team-building activities we look for unique activities that feel relevant, challenging and outside of the box.

This year we did a couple of truly extraordinary events that brought our team together in new ways – like a crash course in sailing with future Olympians! – but the real standout was our participation in the Grand défi Pierre Lavoie. It’s an epic annual four-day, 1000 km relay race that unites thousands of cyclists to promote healthy living and fundraise to support research into rare diseases.

No one person completes the défi alone, just as no one person can run a successful investment firm alone. It takes a cohesive group of skilled team members who can trust and count on each other, especially in volatile times – this challenge was not only a test of physical endurance and teamwork, but also a metaphor for the long-haul journeys that define our success as investment professionals.

Building strength through trust and teamwork

Picture the starting line of the Grand défi Pierre Lavoie: the sun rising, nerves jangling, teammates poised for the first pedal stroke of a 1,000 km adventure. It’s daunting. The finish feels distant, almost impossible. But there are steady wheels on all members of this team – the kind of company that makes every bitter wind lighter and every small victory sweeter.

When you’re part of a team, you’re working toward achieving a common goal, whether it be crossing a finish line 1,000 km away or producing positive returns at the end of a volatile year. As with any team, there are different strengths to be found in each of its members. For the Grand défi Pierre Lavoie, some riders were fast on the straightaways, some were strong up the hills, some were daring through the turns. In our investment team, there are curious researchers, strong risk managers, detailed analysts and more, each of whose skills differ from the others.

On the race path or in the office, the Global Alpha team leans into the grind together, trading stories, picking each other up, finding the opportunities in setbacks. Making these journeys together, especially when there are struggles, builds grit. Over time, the team learns how to support the other members and how to play to their strengths.

There are challenges – sore legs, broken chains, missed targets, sour news, a string of rough quarters or market turmoil, but because of the trust within the team, these are not seen as failures. Instead, the team regroups. An injection of humour gives that second wind that pulls the team through a headwind; one rider’s encouragement or a colleague’s fresh perspective is the spark that keeps everyone moving forward.

But in both environments, there’s an important lesson to be learned: real breakthroughs come after being stretched to the limit.

Going the distance together

During a tough market or a rough patch in life, it can be easy to doubt the journey. During the Grand défi Pierre Lavoie, there are long, quiet stretches where progress feels invisible. Despite pedaling hard, the scenery barely changes. In investing, some days are just as sluggish – despite strong investment principles and proven strategies, the returns can still seem lacklustre.

But these stretched-out moments are where the magic actually happens.

Short-term lulls aren’t proof that nothing’s working – they’re part of playing the long game. It’s easy to chase quick wins or get spooked by setbacks. But by trusting the process, working as a team and continuing to move – one kilometre, one quarter, one decision at a time – perseverance and endurance will deliver quiet rewards and lasting success that go well beyond numbers or market cycles.

Endurance is at the heart of long-term investing because the real rewards come to those who stay disciplined through every market storm and quiet patch. Team endurance wins in investing by combining diverse strengths, steady encouragement and a shared commitment – making it possible to persist, adapt and thrive when others might falter or give up.

Here’s the heart of it: the real win isn’t found at the finish line, but in the journey itself.

• Riding together, sailing together, investing together – it’s never just about the numbers.
• It’s the camaraderie, shared resilience and group celebration after the slog, when you see how far you’ve come, thanks to each other.
• Teams carry everyone through the silent, invisible stretches when progress is slow and doubt is loud.

It’s not about quick wins or epic heroics. It’s about the discipline to show up, the courage to trust the team and the humility to lean on each other for a reset. After every breakdown – on the bike, on the water, in a tough portfolio review – the team draws closer. What once felt like a failure becomes a shared memory, a lesson, a source of strength.

Final thoughts and what we’re doing next

Global Alpha Capital Management stands out because the same teamwork, grit and appetite for challenge that drive us in events like the Grand défi Pierre Lavoie also fuel our investment success. Our edge lies in superior stock picking, shaped by deep, bottom-up research and a thematic, fundamental approach to finding quality companies with real growth potential.

We’re equally relentless in risk management, applying robust analytical frameworks to ensure every investment is weighed wisely no matter how uncertain the market gets. Just as our team perseveres together through endurance events – adapting, supporting and trusting the collective process – we do the same for our clients, aiming for long-lasting performance in turbulent times.

What’s up next for Global Alpha team members? A 30 km trail run on Mont Tremblant – another chance for us take on an uphill challenge and cross a finish line, together.