Are ASX healthcare shares the next to rally?

There are 11 recognised ASX sectors. 

Each sector has a benchmark index that tracks the performance of ASX-listed companies in that sector.

Healthcare and tech shares in focus

Recently, the two worst-performing sectors have been ASX healthcare and technology.

Year to date, the S&P/ASX 200 Information Technology (ASX:XIJ) index is down 16%. 

Meanwhile, the S&P/ASX 200 Health Care (ASX:XHJ) index is down 17%. 

This is relevant for investors to monitor because when sectors are heavily sold off, it creates buying opportunities. 

Quality, blue-chip stocks can be oversold and be scooped up as value plays by savvy investors. 

However in the last month, there has been a sharp difference between these two sectors. 

Many technology shares have begun to recover, experiencing sharp gains since the end of March. 

In fact, since March 30, the S&P/ASX 200 Information Technology (ASX:XIJ) index has rocketed 19%. 

Healthcare shares on the other hand, have remained relatively flat.

Why are healthcare shares still flat?

The Information Technology Index experienced an extraordinary 48% sell-off between August 29 and March 30, driven by investor fears about high valuations and the potential for AI tools to wipe out SaaS companies.

Sentiment has now shifted, driven by a combination of value investing and a belief that AI will enhance some of these platforms rather than destroy them. 

Meanwhile unlike tech, healthcare isn’t getting the same sentiment-driven bounce because its headwinds are more structural.

Upheaval at the US FDA under the Trump administration has created regulatory uncertainty for many Australian biotechs with US ambitions.

Additionally, healthcare companies tend to generate most of their profits well into the future. 

This means rising interest rates hit them harder than most. 

Higher rates make those future earnings worth less in today’s dollars, dragging on share prices even when the underlying businesses are performing fine.

Where is the opportunity for healthcare shares?

For investors focussed on long-term returns, many healthcare companies are priced at relative values right now due to these headwinds. 

Some of the ASX healthcare stocks that have fallen the furthest include: 

• Australia’s largest healthcare company, CSL Ltd (ASX: CSL) is down 42% in the last year
• Sleep technology company ResMed Inc (ASX: RMD) shares are down almost 13% year to date
• Medical imaging technology company Pro Medicus Ltd (ASX: PME) shares are down 36% year to date
• Cochlear Ltd (ASX: COH) is a cochlear implant device manufacturer. Its share price has fallen 35% year to date. 

Foolish takeaway 

The headwinds impacting healthcare stocks are unlikely to subside in the short term. 

However many of these companies are structurally sound, and are suffering from broader factors rather than structural issues. 

This leaves plenty of room for growth in the long term. 

The post Are ASX healthcare shares the next to rally? appeared first on The Motley Fool Australia.

More reading

• Where I’d invest $5,000 in ASX blue-chip shares
• How to start investing in ASX shares with $1,000
• Cochlear cuts FY26 earnings outlook amid softer sales
• 5 oversold ASX shares to buy before the end of April
• Buy, hold, sell: Collins Foods, Netwealth, and Pro Medicus shares

Motley Fool contributor Aaron Bell has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Cochlear, and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Pro Medicus. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended CSL, Cochlear, and Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.