JSE health stocks suffer 21% setback in weak economy
Squeeze on incomes forces South Africans to choose between healthcare and more pressing needs, says money manager
Healthcare companies have missed out on the best first half for SA’s stock market since 2007.
An index of SA hospital operators and pharmaceutical companies has slumped 21% so far in 2019, the worst performance of any Johannesburg sector with more than three members, and lagging behind the 10% gain for all share index.
Analysts and investors blame the weak local economy, which contracted by the most in a decade in the first quarter. Rising fuel and electricity costs are constraining disposable incomes, forcing consumers to choose between their healthcare needs and other even more pressing concerns, according to Ron Klipin, a money manager at Cratos Wealth.
For healthcare companies, this means customer numbers have been declining, he said.
Urgent higher growth
“We need to see greater GDP growth in SA, and especially growth in GDP per capita, before we see a turnaround in order to see an increase in disposable incomes,’’ Klipin said.
“We also need to see more people joining healthcare groups to increase their numbers so that more patients can be treated in private hospitals.”
Casparus Treurnicht, a money manager at Gryphon Asset Management, said: “We need volumes to drastically improve to offset the increasing costs of running these businesses.’’
SA healthcare stocks have also underperformed their developing country peers. An MSCI index of 75 emerging-market health companies has retreated 3% in the first half. The Johannesburg-listed companies have opened a wide discount to their emerging-market peers, trading at about nine times estimated earnings for the next 12 months, compared with more than 22 times for the MSCI index, data compiled by Bloomberg shows.
“The lower valuations relative to prior years may provide an opportunity for fund managers to start accumulating the shares that are currently out of favour and have the ability to rebound should the economic headwinds lift and regulatory pressures ease,” said Lester Davids, an analyst at Unum Capital.