Healthcare – Navigating a currency headwind

We see more downside risk over the near term (the ASX200 Healthcare index has underperformed the market by 1.8% over the past month), given an estimated 80% of the movement in the ASX200 healthcare index is negatively correlated to the AUD/USD cross, but note any specific impact will be company specific. For USD reporting names, Ansell, Resmed, and CSL, USD weakness has a positive revenue impact, but can be offset by local cost hedge or rest of the world COGS, while mark-to-market translation is negative for the trading price. For AUD reporting stocks, Sirtex, Cochlear, Ramsay, and Sonic Healthcare, USD weakness is a headwind across both transactions, with the impact only moderated where higher price FX hedges are held, as well as translation. While maintaining a cautious stance to protect against downside risk, we would also be opportunistic as the FX impacts wane and look to position in good quality names underpinned by strong fundamentals, including Healthscope, CSL, and Ramsay.