The stock market remains feverish. In the United States, job creations remain strong, while underlying inflation (inflation excluding volatile elements, such as food or energy) is rising, so much so that the Fed could continue to raise its policy rate at a good pace. And in Europe, while equities look pretty cheap at first glance, at least significantly cheaper than those listed on Wall Street, “the duration of the war in Ukraine is uncertain, as is the trajectory of ECB rates, while the energy crisis is worrying,” notes Frédéric Rollin, investment strategy advisor at Pictet Asset Management.
If the data coming from China is currently going in the right direction for global inflation, the figures which will be published this Thursday on prices in the United States are eagerly awaited by equity investors. “In the event of a rise in underlying inflation, equities risk experiencing new turbulence,” warns the expert from the Geneva management company. And in 2023, inflation in the United States is likely to decline less quickly than expected, Pictet AM expecting a rise in consumer prices of 4.5% across the Atlantic, against 3.5% expected on average by the market. .
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Between central banks which are likely to remain restrictive and the prospect of downward revisions to the future profits of listed companies (against the high risk of recession), “it is better to be cautious on equities, especially American and European stocks” , Judge Pictet AM, who says he prefers (among others) defensive stocks, such as shares in the health sector.
It must be said that for a long-term investor, it is an investment of choice. The profits (per share) of the MSCI World Health Care index (a barometer of health shares in developed countries) have increased sixfold since 2001, against a “simple” tripling over the period for the profits of the companies included in the composition of the MSCI World (barometer of the actions of the developed States). And this, while the health sector has the advantage of being defensive (it tends to resist better to the vagaries of the economy) and of not being more volatile than the equity market taken as a whole.
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Over time, many growth engines remain on for players in the health sector, between the aging of the population (which promotes an increased need for drugs), the rise in the standard of living in emerging countries (access to care is expanding there) and technological innovations (genetic decoding and increased use of artificial intelligence allow new, more effective treatments). “Oncology is a niche worthy of interest, while some players are aiming for a “precision bombardment of cancer cells” via innovative treatments, notes Frédéric Rollin.
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Technological innovations in support
The expert cites some companies to follow, such as Seagen, Horizon Therapeutics and Exscientia. Seagen “was a pioneer and remains the No. 1 in antibody-drug conjugates. Horizon Therapeupics has seen its technology achieve the greatest success in targeting rare diseases. And Exscientia is the first company to automate drug design and bring a molecule designed by artificial intelligence into clinical trials,” argues Frédéric Rollin.
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Author’s declaration of interests