Health is wealth in a sharemarket on long road to recovery

The $4.3 billion listed healthcare industry  which includes the globally renowned Cochlear and ResMed, as well as drug wholesalers, hospital owners and the condom maker Ansell  is defying the rout.

As Goldman Sachs has pointed out, the ASX 200 declined 7.3 per cent last month, erasing the gains made this year, but healthcare, utilities and telecommunications outperformed.

Healthcare was also the third-best performing sector on Friday, up 0.6 per cent versus a 0.3 per cent fall in the benchmark index.

Its definitely interesting times in terms of what people are willing to pay, a healthcare analyst, who declined to be named, said. Eighteen months ago, Ramsay [Health Care] was not far off $12.

The private hospital operators shares closed at $21.60 on Friday, a new high.

Andrew Goodsall, a healthcare analyst with UBS, said investors were embracing the sectors reputation for reliability, even though it was dependent on government support, and each company had its challenges. In context, its probably looking more reliable than other sectors, he said.

But the Wilson HTM healthcare analyst Shane Storey said the sector had simply risen on weak equity markets, rather than on fundamentals.

We are getting a bit of love, but I dont think its because people have said that healthcare is going to keep growing and growing and growing.

The rise is driven partly by a safe harbour reputation and partly by company specifics, an investor said, noting that investors were flooding to the blood plasma company CSL for its dominant position, good revenue outlook and important technology. CSL was the second-best performer last month.

More speculative companies  such as the respiratory drug maker Pharmaxis and the stem cell company Mesoblast, both down on Friday, and those in preventive rather than life-saving fields  were also more harshly marked.

Mr Storey said because the sharemarket is unlikely to post a recovery over the next six months, the health sector would continue its rally in the short term but gains would be short-lived once the market recovered.

People are using stocks like Ramsay as cash, basically, because healthcare is safe and is immune to commodity prices, so its been a pretty good place to hide, he said.

But as soon as you see the market turn positive, therell be a lot of money that will flood out of healthcare stocks. In a good equity market, then youd have to be much more specific about the companies youd walk at and youre back to fundamentals.

But Mr Goodsall is not so sure that a sharemarket rally will automatically lead to a cooling off in healthcare share prices. The market is so volatile, maybe people will be willing to leave money there for longer.