The bounceback in health care shares, along with the banks, has led to an 11-year high for the ASX as a whole.
Why such strong movement in healthcare?
The Australian Labor Party intended to bring in a 2 per cent cap on price increases for private health insurance for the next two years.
When this policy was announced, combined with a broader expectation of a Labor win, investors became less inclined to buy shares in private health insurance for fear of a cap on profits as a flow-on effect.
However, with the Coalition winning the 2019 election, the cap on private health insurance will not be introduced.
This has led to strong gains of up to 11 per cent for some private health insurers.
Cautions from the experts
Goldman Sachs’ analysis of the private health insurance sector suggests that it can be a risky market in the long term.
While many in the industry saw Labor’s policy as a hit, Goldman Sachs also believes it addressed the industry headwinds of a falling participation rate and increasing youth exit.
Goldman Sachs does not believe special offers, such as Medibank’s 2 per cent discount for youths, will adequately address this issue.
In fact, Goldman Sachs believes the sector is overpriced and that investors should approach with caution.