Despite being perceived as defensive and stable, the healthcare sector had a disappointing year in 2023. However, Candriam is optimistic about investing in healthcare this year as it foresees several headwinds disappearing.
Some of the reasons that the asset manager cites for the sector’s dismal performance last year include the strong investor focus on AI and technology pushing other sectors out of the spotlight. Along with this, the underperformance of small and mid-caps impacted the innovative biotechnology sector, adds Candriam.
Additionally, the asset manager states, “De-stocking by customers of life sciences companies (biomanufacturing, biomedical research) has hit some companies also, and the post-pandemic environment obviously punished those companies that could raise their sales based on their vaccine exposure, direct or indirect, and now face difficult comparisons.”
Looking ahead, Candriam predicts that 2024 will be an upbeat year for investing in healthcare. “…both the Covid pandemic base of comparison is getting easier in 2024, and many life sciences companies are signalling that the de-stocking by their customers is levelling off and orders are coming in again,” elaborates Rudi Van Den Eynde, Head of Thematic Global Equity Management at Candriam.
Furthermore, the asset manager highlights the current valuation of the healthcare stocks looks attractive. Separately, Antoine Hamoir, Senior Equity Analyst, Health Care and Consumer at Candriam, points to the innovation and the rising number of drugs in the development pipeline.
Also, Hamoir projects an economic slowdown in China and several European countries. At the same time, the asset manager believes that the US Federal Reserve will begin a round of rate cuts in 2024. “The combination of slower growth with lower rates is a very appealing macro mix for the health care sector as the health care business is much less dependent on economic conditions than other sectors,” he states.
“Lower rates will help the investor sentiment towards not yet profitable but innovative biotechnology companies,” adds Candriam.
Besides, with the US presidential elections approaching, there exists a possibility of unfavourable remarks concerning the cost side of the healthcare sector. However, Candriam differs from this viewpoint. Eynde states, “We think it might be different this time, as health care does not seem to be the battlefield this time.”
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