Here's why you should invest in healthcare companies

High profile IPOs created additional limelight.

According to OCBC, the FTSE ST Health Care Index (FSTHC) has turned in a muted showing this year thus far, declining 7.4% YTD and underperforming the broader market.

Here's more from OCBC:

We believe this was caused by the drag from Biosensors International Group’s (BIG) weak share price performance, which carries a substantial weight in the index (prior to the listing of IHH).

Nevertheless, we believe that the strong selloff in BIG’s stock since Apr has been overdone. We expect the group to continue its market share gains, underpinned by its technologically superior drug-eluting stent (DES) platform, which should mitigate the challenges in the DES industry.

Meanwhile, the healthcare sector also saw the high profile IPOs of IHH Healthcare Berhad (IHH) and Religare Health Trust (RHT) in 2012. We opine that these listings have created additional limelight on the sector and also offer investors a proxy to the thriving regional healthcare scene.

Robust fundamentals to drive growth ahead
We are still sanguine on the growth prospects of the healthcare sector as we move into 2013, as robust industry fundamentals are structural and entrenched in nature.

This implies that the underlying growth drivers such as a growing and fastaging population, rising affluence, increasing incidence and morbidity of diseases and burgeoning medical tourism activities would likely persist in the long run.  

Maintain OVERWEIGHT; BIG our top pick for 2013
We opine that the healthcare sector offers investors a unique investment proposition. This is because healthcare companies in general are relatively more resilient in nature due to their defensive earnings, while growth opportunities are also favourable given the aforementioned factors.

This has allowed the healthcare sector to command a valuation premium to the broader market, in our opinion. We thus reiterate our OVERWEIGHT rating on the healthcare sector.

However, we are cognisant of certain risk factors which could impact the margins and earnings of healthcare companies, such as rising staff and consumables cost (healthcare service providers) and price cuts (medical device and pharmaceutical companies).