Healthcare investment team at Bellevue Asset Management.

The healthcare sector is heading into the new year with momentum on its side. Visibility around public health policy has improved, and investors are reallocating more assets to the sector. Earnings expectations across healthcare are rising, supported by a broad innovation pipeline and the emergence of new market segments. Yet healthcare stocks still trade at a discount to the global market. A re-rating is underway and gathering pace. At current levels, there are still attractive entry points for investors looking to increase exposure to healthcare.

The sector’s momentum is underpinned by the following five key drivers:

1. Regulatory clarity is drawing investors back into the sector

The drug pricing agreement reached between the US administration and Pfizer, announced at the end of September, followed by similar deals concluded with Eli Lilly and Novo Nordisk in November, clearly marked a turning point. These announcements established a more predictable framework for drug pricing and reimbursement policy, reducing the uncertainty that had hung over the sector like a sword of Damocles and improving planning visibility.

Investors reacted quickly to this shift: healthcare has been one of the best-performing segments of the global equity market since the start of the quarter (+9%); the biopharmaceutical sector has outperformed the broader market by around 14 percentage points; and over the past three months alone, an additional $8 billion has been invested into healthcare ETFs worldwide. Both institutional and generalist investors are returning to healthcare.

2. The re-rating has started – but the catch-up potential remains substantial

Healthcare valuations are gradually moving back toward their historical averages, but the sector still trades at a discount of about 13% to global equities. The outlook for healthcare companies remains encouraging: estimated average earnings growth for biopharma and life sciences tools and equipment between 2024 and 2027 is around 15%, more than twice the sector’s historical growth rate of roughly 7% per year.

3. Powerful growth drivers and strong M&A firepower in biopharma

In 2026, biopharmaceutical stocks are expected to benefit from several structural trends: the rise of new oncology treatment classes, advances in obesity and diabetes therapies, and therapeutic innovation in cardiovascular disease are all creating additional market volumes. Demand for bioprocessing solutions is also rising, driven by reshoring activity and new production platforms.

The biopharmaceutical industry also has more than $180 billion in cash available for mergers and acquisitions, which can be deployed to offset revenue losses linked to patent expiries or to fill strategic gaps in R&D pipelines.

4. From glucose sensors to pulsed-field ablation: medtech is growing fast

Medical technology remains a key growth engine, supported both by robust demand in established market segments and by the recent emergence of new multi-billion-dollar markets. Robot-assisted surgery systems, glucose-monitoring devices and treatments for cardiac conditions are all areas that continue to post double-digit growth rates.

We estimate that the addressable market for continuous glucose monitoring solutions will expand from $11.7 billion in 2024 to more than $21 billion by 2029. New technologies such as pulsed-field ablation are rapidly making their way into clinical practice, while AI-enabled smart glasses are gaining traction. EssilorLuxottica’s sales growth has more than doubled this year, precisely thanks to this product category.

Medtech valuations remain attractive: large-cap stocks in the sector trade at 18.3 times forward 12-month earnings, representing a discount of about 18% to the S&P 500.

5. Emerging markets are strengthening their innovation capabilities and market weight

Emerging markets are increasingly establishing themselves as genuine innovation hubs. China is in the midst of a transformation, moving from the role of licensing partner to that of a global pharmaceutical player. Chinese companies are bringing an ever larger number of cutting-edge, internally developed drugs to market, such as bispecific antibodies in oncology and new antibody-drug conjugate (ADC) platforms.

In India, rapid middle-class growth and substantial public spending on healthcare infrastructure are major growth drivers. Chronic disease management is a fast-expanding market in the country; private hospital chains continue to grow, and specialty medicines have become a meaningful market segment.

These developments are giving rise to new healthcare ecosystems, in which newly industrialised countries are no longer merely integrated into Western companies’ production and cost chains, but are becoming designers of high-quality specialty medicines and therapeutic platforms with global reach.

Conclusion

The healthcare sector will enter 2026 with strong structural growth drivers and improved earnings visibility. Innovation remains a key factor, supported by well-stocked pipelines, new therapeutic platforms and advanced technology solutions.

It is also worth noting the sector’s pronounced performance divergence, as measured by the MSCI World Healthcare index: in the first half of 2025, the gap between the best- and worst-performing stocks stood at +72% and -38%, respectively. This spread reflects the growing segmentation within the healthcare equity universe, creating a favourable environment for active managers, who can generate significant alpha through disciplined stock selection.

After the recent period of regulatory uncertainty, healthcare is once again drawing on its traditional strengths in innovation, growth and operating visibility, qualities that have consistently enabled it to generate tangible value.

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