AS THE Australian sharemarket slides, one sector is withstanding the collapse.
The $4.3 billion listed healthcare sector which includes the globally renowned Cochlear and Resmed, plus drug wholesalers, hospital owners, and condom maker Ansell is defying the rout.
As Goldman Sachs has pointed out, the S&P/ASX 200 Index declined 7.3 per cent in May, erasing all the gains made so far this calendar year, but healthcare, utilities and telecommunications have 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.
"It's definitely interesting times in terms of what people are willing to pay," said one healthcare analyst. "Eighteen months ago Ramsay [Health Care] was not far off $12."
The private hospital operator's shares closed on Friday at $21.60 a record high.
UBS healthcare analyst Andrew Goodsall said investors were embracing the healthcare sector's reputation for reliability, even though it was dependent on government support and each company had its challenges.
"In context, it's probably looking more reliable than other sectors," Mr Goodsall said.
But 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 don't think it's because people have said that healthcare is going to keep growing and growing and growing," he said.
The rise is partly driven by the sector's reputation as a "haven" and partly driven by company specifics, an investor said, noting that investors were flooding to blood plasma giant CSL for its dominant position, good revenue outlook and important technology. CSL was the second-best performer in May.
More speculative companies such as respiratory drug maker Pharmaxis and stem cell company Mesoblast, both down on Friday and companies in preventative rather than life-saving fields were also more harshly marked. Wilson HTM's Mr Storey said that with the sharemarket unlikely to post a recovery over the next six months, the healthcare sector would continue its rally in the short term, but gains would be shortlived once the market recovered.
"People are using stocks like Ramsay as cash, basically, because healthcare is safe and is immune to commodity prices, so it's been a pretty good place to hide," Mr Storey said.
"But as soon as you see the market turn positive, there'll be a lot of money that will flood out of healthcare stocks.
"In a good equity market, then you'd have to be much more specific about the companies you would walk at and you're back to fundamentals."
But UBS' 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," he said.
Frequently Asked Questions about this Article…
Why is the Australian healthcare sector holding up while the sharemarket falls?
The article says the healthcare sector has outperformed as the S&P/ASX 200 slid (down about 7.3% in May). Healthcare, utilities and telecommunications have been relative outperformers because investors view healthcare as a more reliable, defensive sector — a “haven” — and some companies have strong company-specific fundamentals or government support.
Which Australian healthcare companies are mentioned as driving the sector's resilience?
The article names Cochlear and Resmed, drug wholesalers, hospital owners, Ansell (the condom maker), Ramsay Health Care and blood‑plasma giant CSL. It also mentions smaller, more speculative names like Pharmaxis and Mesoblast.
What did analysts say about the healthcare rally and its reasons?
UBS analyst Andrew Goodsall said investors are embracing healthcare for its reputation for reliability, even though companies depend on government support and face challenges. Wilson HTM analyst Shane Storey said the sector has risen largely because weak equity markets pushed money into defensive stocks rather than because of stronger fundamentals.
Is healthcare being treated as a safe haven by investors right now?
Yes. The article reports investors are using healthcare stocks like Ramsay as a place to hide cash because they see the sector as safer and less tied to commodity swings. However, analysts note this doesn’t remove company‑specific risks or the sector’s dependence on policy and fundamentals.
Will the healthcare sector rally continue or is it likely to reverse?
Views differ in the article. Shane Storey expects the rally to continue in the short term while overall markets remain weak but thinks gains could be short‑lived once markets recover. UBS’s Goodsall says market volatility might mean investors leave money in healthcare for longer, so an automatic cooling is not guaranteed.
How did Ramsay Health Care perform recently and why is it notable?
Ramsay’s shares closed at a record high of $21.60 on the Friday mentioned in the article. An analyst noted that about 18 months earlier Ramsay was trading not far off $12, highlighting a substantial run higher as investors sought safety in hospital operators.
Why are investors 'flooding' to CSL and how did CSL perform?
Investors have been buying CSL because of its dominant market position, a positive revenue outlook and important technology. The article says CSL was the second‑best performing stock in May, reflecting that demand.
Are there parts of the healthcare sector that remain risky for everyday investors?
Yes. The article notes more speculative companies — for example Pharmaxis (respiratory drugs) and Mesoblast (stem cells) — were down on the referenced Friday, and firms in preventative (rather than life‑saving) fields were more harshly marked. Analysts caution the sector isn’t uniform and company fundamentals still matter.
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