Healthcare sector seems immune to recent falls
AS THE Australian sharemarket slides, one sector is withstanding the collapse.
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.
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