SYDNEY May 12 Sweeping changes are expected in
Australia's healthcare sector when Prime Minister Tony Abbott's
government unveils its first budget on Tuesday and investors are
eyeing the potential impact on healthcare stocks.
The government is looking to rein in healthcare costs, among
other expenditures, after an audit of the economy released in
early May recommended cuts and broad structural changes to stem
what the government warns is a looming "fiscal crisis".
Health makes up roughly 16 percent of federal government
spending, so many healthcare companies' fortunes are linked to
"It's a major issue for the healthcare sector because nearly
every part of the sector is intertwined with government policy,"
said Bill Keenan, general manager of equities and researcher at
stockbroker Lonsec, which holds shares of healthcare supplier
"Overall there's obviously going to be some negatives coming
out after the healthcare stocks, it's one sector where you need
to see the budget before investing more money in it."
Adding to the downside risk for healthcare stocks is the
fact that the sector outperformed the broader market in 2013 and
some individual stocks have continued to strongly advance this
year - leaving them vulnerable to profit-taking.
The S&P/ASX200 Health Care Index is up 0.5 percent
percent so far in 2014, compared to a broader market rise of
nearly 2 percent. The Health Care index jumped 23.5 percent in
2013, outperforming the S&P/ASX 200, which added 15.1
The government audit also recommended cuts to the A$19
billion Medicare Benefits Schedule, which is the list of health
products and services the government will pay for, and also the
introduction of co-payments for visits to doctors.
Companies that provide these serices could be impacted.
Two such stocks are Sonic Healthcare a radiology and
pathology provider, and Sigma Pharmaceutical Group, a
wholesale and distribution business to pharmacies.
Sonic and Sigma have gained 7.6 percent and 10.3 percent so
far this year.
Analysts at UBS said that while co-payments for doctor
visits might provide some revenue for medical centre operators,
it could also reduce the number of doctor visits and thus the
amount of pathology and diagnostic work undertaken.
The government's pending public floatation of Medibank
Private, a government-owned private health insurer, while at the
same time forcing high-income earners to take out private
insurance in place of Medicare, a publicly funded universal
health care scheme, has also caught investors' attention.
"Given the government is about to sell a major private
health insurer (Medibank) via IPO, I expect that healthcare
policies will continue to support both insurers and private
hospital operators," said Shane Storey, head of research at
Wilson HTM Investment Group.
He highlighted NIB Holdings and Ramsay Healthcare
as two stocks that might benefit. NIB has jumped 7.1
percent so far in 2014, while Ramsay Health Care is up 4.6
Storey declined to comment on which stocks Wilson HTM
Abbott and Treasurer Joe Hockey have been bracing voters for
hefty spending cuts and other measures in the May 13 federal
Without action, the country's deficit could swell to A$123
billion in the next four years, they have warned.
"I'm sure the impacts (of the budget) will be far reaching
and I think the essential thing is that the business is in a
state that it can evolve or adapt," said Simon Mawhinney, a fund
manager at Allan Gray Australia, which owns shares in Sigma
($1 = 1.0697 Australian Dollars)
(Reporting by Thuy Ong; Editing by Kim Coghill)