Healthcare's Valuation Disconnect Signals Opportunity for Asia's Wealth Allocators
The healthcare sector is currently facing a period of underperformance, with its equities trading at a steep discount to the broader market. However, this presents a compelling opportunity for wealth allocators in Asia, according to Bellevue Asset Management. The Swiss specialist manager recently participated in a Hubbis roundtable in Hong Kong, where they outlined the reasons why the sector's depressed sentiment, robust fundamentals, and unmatched innovation pipeline could be setting the stage for a meaningful rerating.
A Sector Out of Favor, But Not Out of Form
The healthcare sector's underperformance has been a persistent issue for the past two years, driven by political uncertainty in the United States, rising interest rates, and the shift of capital towards AI and technology stocks. Marcel Fritsch, Head of Healthcare Funds and Mandates and Portfolio Manager at Bellevue Asset Management, acknowledged the challenge, stating that the sector's performance has been "quite difficult" due to these factors. However, beneath the headline weakness, the fundamentals remain strong across multiple sub-sectors.
The resolution of the most-favored-nation pricing dispute with the US government late last year effectively removed a significant political overhang on the sector. This has stabilized pharma and large-cap biotech, while small and mid-cap biotech names have performed well due to strong clinical results and a surge in acquisition activity from large pharma companies.
Healthcare providers, particularly US health insurance companies, have faced challenges due to rising medical costs among the elderly population. However, the first-quarter 2026 results marked a turning point, as premiums were high enough to absorb underlying medical costs, according to Fritsch.
The Valuation Case
The valuation disconnect is even more pronounced in the medtech sub-sector. Historically, medtech traded at 24-25 times earnings, but it has compressed to around 18 times, despite delivering six to nine percent organic revenue growth and low double-digit earnings-per-share growth. This presents a promising opportunity for investors, as the sector's fundamentals remain strong.
Bellevue's analysis reveals that the MSCI World Healthcare Index trades at 17 times next-12-month earnings, compared to 21 times for the S&P 500. On a relative basis, healthcare's price-to-earnings (P/E) ratio is 0.82 times the broader market, well below the 10-year average of 0.90. This undervaluation and under-ownership provide a compelling entry point for investors.
Innovation as the Growth Engine
Innovation is a key driver of long-term growth in the healthcare sector. Bellevue highlighted several areas where new products and treatment modalities are creating entirely new revenue pools.
In cardiovascular medicine, lipoprotein(a) (Lp(a)) represents a significant opportunity. Elevated levels of Lp(a) are genetically determined and cannot be managed through diet or exercise. Several companies, including Novartis and Amgen, have candidates in late-stage trials, with Phase 3 data expected in 2026. Bellevue believes this market could be worth several billion dollars.
Medtech is also experiencing structural advances, particularly in robotic surgery. Intuitive Surgical's Da Vinci 5 system incorporates AI-driven features, including simulated surgical training and tissue pressure sensing. The broader medtech landscape offers significant market expansion, with projections of the continuous glucose monitoring market growing from USD11.7 billion in 2024 to USD21.3 billion by 2029.
AI as an Enabler, Not a Disruptor
AI is playing a crucial role in healthcare, but it is primarily an efficiency tool rather than a disruptor. In pharma and biotech, AI is being used to accelerate drug development, improve patient selection for clinical trials, and predict toxicity profiles. This could lead to potential savings of USD70 billion in drug development costs by 2028 and 40-70% reductions in preclinical timelines.
For health insurance companies, AI enables automation of invoice processing and contract management at scale. In medtech, heavy regulatory requirements create natural barriers that protect hardware-based businesses from software disruption. Companies in this sector are also using AI to develop their software further, giving them a head start.
M&A as a Structural Imperative
Patent expirations loom large over big pharma, with hundreds of billions of dollars in revenue at risk over the next four to six years. M&A is an imperative rather than an option, as Fritsch explained. The 20 largest biopharma companies collectively hold more than USD1 trillion in combined cash and additional debt capacity, and major transactions in 2025 and early 2026 underscore the ongoing M&A cycle.
Building the Case for Allocation
Healthcare remains structurally underweight in most portfolios, even as the sector's defensive qualities and innovation-driven growth make it a logical complement to concentrated technology positions. Wealth managers and family office professionals are increasingly looking at healthcare as a defensive sector, particularly in the current market environment.
Bellevue Asset Management positions itself as a specialist partner for investors seeking differentiated healthcare exposure. With vehicles covering broad healthcare, medtech, and emerging markets healthcare, the firm believes that the current dislocation represents a window of opportunity that disciplined allocators should not ignore.
