Photographer: Dario Pignatelli/Bloomberg

The Top Sector in Asian Stocks Isn't What You Think It Is

It has one of the lowest weightings on Asia’s benchmark equity index and is now gaining ground on the behemoths. And it has the recent global selloff to thank for that.

A sub-gauge of health-care stocks in Asia has advanced 9.3 percent this year, almost double that of 2017’s front runner and regional giant, technology as investors rotated out of cyclical shares into defensives. The former took the lead early this month during the rout, and has not looked back since -- it has been the best performer on the MSCI Asia Pacific Index for 14 straight sessions.

“Health-care is considered more of a defensive sector and usually performs well in times of uncertainty,” said Tuan Huynh, chief investment officer for Asia Pacific at Deutsche Bank Wealth Management. “We have seen investors switching out of tech and financials during the market correction into laggards like health-care.”

The shares of technology companies in Asia rose 4.9 percent this year, while consumer discretionary stocks have gained 4 percent. Both sub-gauges have yet to climb back to levels reached before the February rout.

Australia’s CSL Ltd. was the biggest boost to the health sector as it raised its full-year profit forecast on Feb. 14, pushing the shares to new highs in the longest winning streak in more than a decade. Shares of Japan’s Daiichi Sankyo Co. have increased 32 percent this year amid positive trial data while South Korea’s Celltrion Inc. has seen its stock soar ahead of its addition to the benchmark Kospi Index and its potential in biosimilar drugs.

Even so, Huynh is still positive on the technology and finance stocks.

Investors would need to have a long-term view on Asian health-care companies as it isn’t as advanced compared with other regions, he said. “We still think that both tech and financials are the two sectors which should outperform the other sectors due to superior earnings outlook. Asian financials are also at a discount versus their U.S. peers.”

Health-care has the fourth-smallest weighting of 11 industry sub-indexes on the region’s main equity index. Technology and finance still hold the biggest weights at 21 percent each, while health-care accounts for about 4.9 percent.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE