The winner in 2020 in the Asian stock market is now the biggest loser

SEOUL: While technology stocks continue to lead the rally in Asia, one hot sector from 2020 has fallen to the bottom of the leaderboard: healthcare.

The sector gauge, which has been essentially flat so far, is the worst performer in Asia, lagging the region’s benchmark at 9%. It is on track to retreat from the MSCI Asia Pacific Index for a third month in a row, its longest losing streak in three years.

The growing expectation of a return to normal for the global economy has caused investors to abandon defensive bets made during the pandemic, such as healthcare. Second best performance last year.

Energy stocks rebounded in crude oil prices, while the financial sector was boosted by higher bond yields.

“The market reflects expectations of reopening and recovery, which is supporting cyclical sectors rather than healthcare,” said Kiran Calder, head of Asian equity research at Union Bancaire Privee Ubp SA.

And according to Calder, huge valuations are also a concern. The industry gauge trades at less than 30 times forward earnings, and is the highest among all sectors, according to data compiled by Bloomberg. The standard is only 18 times.

The retail craze is fading

The fading retail craze in markets like South Korea has also played a role in the recent weakness of the healthcare sector.

Shin Poong Pharmaceutical Co, a company developing a treatment for Covid-19, is down 36% this year after hobbyist investors helped it soar 1,600% in 2020.

Celltrion Pharm Inc, another vaccine related stock, is down 32% after rising more than 500% last year.

“One of the salient features of the South Korean stock market is that individual investors actively trade stocks and the strong herd behavior,” said Seo Sang-young, a market analyst at Kiwoom Securities.

“Unless there are additional events or improvements in earnings, such as new drug development for pharmaceutical companies or vital companies, stocks tend to return to where they came from.”

Teflon technology

Conversely, the strength in technology stocks extended into the new year, with a metric for telecom services being identified as the first winner in Asia.

According to Stephen Kamm, head of product management for former Asian stocks for Japan at Schroders, some shutdown winners who pitch in on long-term growth topics in countries like China, will continue to outperform.

“Technical devices are one of these industries,” Kam wrote in a recent note. “People continue to work from home until 2021.”

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