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In focus: Facing US policy risks, health care is still a viable sector

The health care sector continues to offer attractive exposure to defensive growth qualities. However, some near-term headwinds are emerging as the market digests the policy risks associated with cabinet nominees of US President-elect Donald Trump. 

While caution is advised, Templeton Global Equity Group (TGEG) aims to selectively stay invested in the sector. Our focus is on companies identified as best-in-class businesses that we believe are still undervalued or reasonably valued relative to their intrinsic worth. Examples include managed care, medical devices and diversified pharmaceuticals firms.

Investment outlook

In North America, the US market rallied into the election, and companies viewed as direct Trump beneficiaries have continued to outperform. We believe the market will now consolidate into the new year as market participants see how the president-elect’s policy implementation plays out. We will monitor this situation, but we think US equities can continue their outperformance in 2025. We believe more favorable tax policies, lighter regulation and increased small business optimism should boost the outlook for corporate profits enough to offset headwinds from higher tariffs and bond yields and reduced immigration. The US market will likely experience a rotation away from the handful of stocks most responsible for the market gains of recent years to a broader set of companies and industries. We believe the anticipated shift in market leadership will be driven by tangible earnings improvement.

In Asia Pacific, entering the last month of December, APAC equities will likely remain on uneven ground and lag their counterparts in the United States. Whereas the US market is riding on post-election optimism, investors in Asia have to grapple with a relatively uncertain macro outlook. Asia’s earnings recovery has remained on track, recording around 12% of year-on-year growth during the July-September quarter.1 However, earnings growth may have peaked this year and could decelerate in 2025 amid potentially weaker exports and slower economic growth due to the potential impact of higher US tariffs.2 Policy news may also throw up headwinds, especially for equities in mainland China and Hong Kong, as market hopes and disappointments surrounding China’s stimulus measures continue to dominate sentiment. 

In Europe, interest rates declined in 2024 at a slower rate than was expected at the end of last year, but more central banks globally are now enacting rate cuts. While there remains significant volatility in yields on long-term debt, we expect (and the market consensus expects) for rates to continue declining through 2025. Nonetheless, we believe that rates will remain much higher than was the norm in the pre-pandemic era, and for a longer period than previously expected, because of persistent and “sticky” inflation. 

Market review: November 2024

Global equities collectively rose in November 2024. In US-dollar terms, developed market equities outperformed the global benchmark MSCI All Country World Index,3 while emerging market and frontier market equities significantly underperformed it. In terms of investment style, global growth stocks outpaced global value stocks.

A significant post-election rally drove market gains. While President-elect Donald Trump’s election victory and the potential for additional tax cuts and expansionary fiscal policy bolstered US equities, investors outside the United States were more cautious as they were concerned about the president-elect’s tariff plans and their implications on global trade. On the economic front, global manufacturing activity stabilized in November after four months of contraction, while flash reports for the same month showed signs of strength in many regions.

Endnotes

  1. Source: Bloomberg. As of December 2, 2024. Based on the MSCI All Country Asia Pacific Index. The Index captures large and mid-cap representation across 5 developed market countries and 8 emerging market countries in the Asia Pacific region. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results.
  2. Source: J.P. Morgan, “Global Markets Strategy.” As of November 27, 2024.
  3. The MSCI ACWI captures large- and mid-cap representation across 23 developed markets and 24 emerging markets countries. Indexes are unmanaged and one cannot directly invest in them. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results.

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