Where Health Care Is Working In 2019

The health care sector, the second-largest sector weight in the S&P 500, is easily the worst-performing group in the U.S. this year, but in other countries with massive health care markets, the sector is performing well.

What Happened

The Health Care Select Sector SPDR XLV, the largest health care exchange traded fund listed in the U.S., is down 3.36 percent year-to-date. By comparison, the Global X MSCI China Health Care ETF CHIH is up a stellar 15.13 percent this year.

Having debuted last December as part of a broader China sector ETF suite, CHIH is one of the newest health care ETFs. The fund tracks the MSCI China Health Care 10/50 Index.

Why It's Important

While CHIH is still small compared to U.S.-focused healthcare ETFs, China's health care is massive.

“Although China’s health care sector only began privatizing in the 1990s, it is today a vast ecosystem hosting the world’s second largest pharmaceutical market,” said Global X in a recent note. “With China’s health care industry projected to be worth $2.4 trillion by 2030, its maturity from infancy will be tied to growing domestic demand and expanding its global reach.”

In China, the health care is dominated by pharmaceuticals providers with that industry commanding a much larger weight there than in the U.S. health care sector.

“At the industry level, Pharmaceuticals make up a larger part of this sector in China at around 55%, followed by Providers & Services at 14%, and Life Sciences Tools & Services at 13%,” according to Global X research.

What's Next

Bolstering the chase for CHIH and China health care investments are several factors, including the sector's growth trajectory in China and lack of political interference. Among the reasons health care stocks are struggling in the U.S. this year are both political parties' efforts to lower drug prices and the specter of a Democrat that supports Medical For All garnering that party's 2020 presidential nomination. Those factors mean nothing to CHIH and the Chinese health care sector.

In China, health care is merely the eighth-largest sector weight in major equity benchmarks, implying ample room for growth.

“Because of several thematic tailwinds, analysts anticipate that China’s Health Care sector will experience higher sales growth versus the US,” said Global X. “Yet despite higher growth expectations, valuations appear cheaper and debt levels lower for Chinese firms versus those in the US Health Care sector.”

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