Global healthcare stocks are expected to perform strongly in the long term as they will benefit from long term spending boost across developing and developed economies triggered by ageing populations and widespread chronic disease, according to VanEck.
While healthcare expenditures in developing economies were expected to rise, as these nations would strive to provide better healthcare for their citizens, the outcome of the US election was also positive for healthcare stocks, with the Democrats unlikely to control the US Senate, leaving the status quo intact for pharmaceutical and biotechnology companies.
On top of this, demand for COVID-19 vaccines would be huge next year as they are deployed, and companies developing treatments including Pfizer, AstraZeneca and Johnson & Johnson would directly benefit from that huge global demand.
“An allocation to global healthcare is important to get a diversified exposure to different healthcare subsectors and companies. But investing in health care is easier said than done. There are many complexities due to the diversity of the industry, much of which is located offshore, and governed by different legislative frameworks,” Russel Chesler, head of investments and capital markets at VanEck, said.
“Overall, health sector valuations are attractive compared to the broader US stock market, which is dominated by more expensive technology stocks. Yet health stocks, like technology, offer investors the potential for high growth. We could also see a spike in merger and acquisitions activity given the sector is awash with money, potentially handing a premium to shareholders.
“In early December, the healthcare sector has been trading at a forward price-earnings discount to the S&P 500 of around 32%, highlighting the value that the sector offers.”
Global healthcare, which includes pharmaceutical and biotechnology companies and equipment providers, would see its expenditure become increasingly important to the global economy, accounting for around 10% of the world’s GDP, or US$11 trillion, as at 2018.
With global GDP projected to grow to US$137 trillion by 2030, and healthcare expenditures forecast to remain at 10% of GDP, this would translate into over US$13 trillion in healthcare spending each year by the decade’s end, the firm said.
