In an uncontrolled scenario of the death toll outbreak, some sectors found themselves making the most of the situation to achieve record profits. Indeed, Asian-based companies such as Top Glove, a rubber surgical gloves producer, and Zhende Medical, a medical supplier, saw their stocks skyrocket by 14% and 33% at the beginning of the month.

As such, we could have thought that the global healthcare sector would have been less affected by the situation, but it happened to be hypothetical.

Indeed, as the S&P 500 fell by more than -11.5% since the start of the week, the Health Care Select Sector SPDR Fund, composed by the biggest pharmaceuticals and health care equipment companies (Johnson & Johnson, UnitedHealth, Merck & Co, Pfizer, etc.), also lost more than 10% over the same period.

There are two main explanations to that:

Most pharmaceuticals company’s supply chain depends heavily on China, leading markets to fear a shortage. Indeed, Laboratories buy a large part of their bulk components, vaccines, anti-cancer drugs and generics from China. In the 1980s, drug companies chose to relocate part of their production to Asian Factories, where they kept their research and development activities due to cheaper Labor and more flexible regulations.

Thus, a lasting virus spread would potentially put global supply at risk. Therefore, governments are currently alarming healthcare professionals on taking the necessary measures to guarantee health coverage. A few days ago, French Pharmaceutical giant Sanofi responded to that by announcing, a few days ago, that it will relocate part of its production sties in Europe before 2022. Too late for Investors.

The other explanation to healthcare stocks downturns appears to be political with the rising likeliness to see Bernie Sanders as the 2022 election Democratic candidate. The Left-wing program of the politician contains a dismantling of America’s private health care system, which would be replaced by a government-run Medicare-for-All. On the markets side, as the investiture of the democratic candidate seems more and more probable, private health insurance actors such as UnitedHealth are taking a big hit with the stock dropping by -13% over the week.

Even though it is still unlikely to imagine such legislation to go through, this puts the lights back on a sector that has been at the center of discussions since Barack Obama’s election and his affordable Care Act in 2008, period that corresponds to UnitedHealth’s all time low in stock markets, before its impressive performance in the past years, under the new laws.

Authors: Emilie Mayer, Côme Vigoureux

Sources: Reuters, France Info, State Street SPDR, Investopedia