Healthcare Was the Worst ASX 200 Sector in FY26, But Here’s Why FY27 Will Be Better!

What was worst ASX 200 Sector in FY26? With a 36% decline, it was healthcare. Technology fell by a similar amount, but while you could argue you’d expect tech to fall given rising geopolitical tensions and interest rates, you wouldn’t for health because the sector is normally defensive.

While the theoretical reasons for thinking health is defensive are intact: theory did not matter because earnings profile weakened, the multiples compressed and the market rotated aggressively toward cash‑flow certainty. But will FY27 be better? That’s what this article will explore.

Why Healthcare Was the Worst ASX 200 Sector in FY26

Now, given most companies in the ASX 200 Healthcare Indice are established, key to the indice’s performance (or lack of) is earnings season and how results (or trading updates) are received. Across FY26, several large‑cap names delivered weaker‑than‑expected results, either through softer US revenue, slower procedure volumes, reimbursement pressure or delayed product launches. The market had priced healthcare as a reliable compounder; FY26 revealed that earnings were more cyclical than investors assumed. When the largest constituents miss, the sector follows.

We think that is the number one reason. The ‘standout’ was Cochlear which shed over a third of its value in a single trading day – something unthinkable prior to that fateful day back in April when it cut its guidance.

Also not helping matters were regulatory friction and capital intensity. FY26 saw regulatory tightening across multiple jurisdictions, especially with the US FDA in terms of scruitany and reimbursement uncertainty. These factors don’t destroy business models, but they delay revenue and increase cost. In a market that rewarded immediacy, delays were punished.

Healthcare companies with heavy R&D pipelines, clinical trial obligations or manufacturing expansion plans faced higher funding costs. Investors rotated away from businesses that needed capital and toward those generating capital. The sector’s long‑duration profile became a liability.

But to tell the full story, we need to look at the sectors that did well. Resources did, especially stocks exposed to metals important in the AI boom as well as gold. Banks, insurers, infrastructure and certain industrials also did well with near-terms earning visibility or just no downgrades to speak of. Healthcare’s narrative weakened, and the market followed.

Could FY27 be better?

Despite the FY26 drawdown, we think yes, there are credible reasons to believe FY27 could be a recovery year for parts of the sector.

In our view sector’s long‑term drivers remain intact. Ageing populations, chronic disease prevalence, digital health adoption, biotech innovation and medical‑device demand are structural, not cyclical and FY26 did not change the underlying demand profile. Moreover, the poor performance of some stocks mean they are now trading at valuations that imply pessimism rather than realism. FY27 does not need perfection; it needs stability. Stability is achievable.

Moreover, there is more regulatory and funding certainty. Several companies have progressed approvals, resolved reimbursement questions or advanced clinical programs. FY27 should see fewer regulatory delays and more predictable pathways. Healthcare companies that needed capital have largely raised it. Those that didn’t need capital now benefit from lower expectations and cleaner balance sheets. The funding overhang is smaller.

So what healthcare stocks could rebound?

Plenty of them could, but we think a few particularly stand out. One is Cochlear (ASX:COH) which we already mentioned. FY26 hadn’t been that bad a year, until the Middle East conflict broke out. Given delivery delays as well as existing customers deferring upgrades, market cochlear implant volumes had been softer than expected from January up until late April. The appreciating Aussie dollar didn’t help either. And so it slashed its FY26 underlying net profit guidance to A$290–330m from a previously disclosed range of A$435–460m.

FY27 could be better given the worst of the conflict is over and because Cochlear is planning expansion into emerging markets. The company enters FY27 with a cleaner valuation and more achievable expectations. Its FY26 results and FY27 guidance will be crucial though.

Another is Ramsay Health Care (ASX:RHC) which suffered from cost inflation, labour shortages and weaker hospital profitability. FY26 was a year where the market lost patience with the private‑hospital model – or at least its profitability.

FY27 could be better because labour conditions are improving, procedure volumes are normalising and Ramsay has been restructuring parts of its European footprint including demerging its 52.8% in its local subsidiary that has been underperforming relative to Australia. Moreover, The company has seen improved theater utilisation rates and higher-acuity, high-margin case mixes, which are boosting domestic profitability. If FY27 shows even modest margin recovery, the market will reassess the long‑term viability of the model.

Finally there’s Pro Medicus (ASX:PME). This company has kept delivering the goods but has been sold off given high multiples. The reality is that it is still underpenetrated in the US market and has several multi-year contracts with major health providers with recurring revenue set to flow in for several years. We’ve also been watching its M&A spree with fascination lately and think it could reap benefits in the years ahead.

What about small caps?

Turning to the small to mid cap space, names we like include Nanosonics (ASX:NAN), Clinuvel (ASX:CUV) and Immutep (ASX:IMM).

For Nanosonics, which sells infection control products, FY26 was messy due to forex headwinds, margin pressures (due to tariff and freight costs) as well as sluggish consumable sales. But the underlying infection‑prevention demand remains intact. If FY27 shows smoother execution, NAN could rebound. The company is hedging its bets on that the upgrading of its trophon3 automated high-level disinfection system will help as well as the launch of CORIS, its automated endoscope reprocessing system.

Clinuvel is a seller of Scenesse which treats Erythropoietic Protoporphyria (EPP). During FY26, it struggled as investors pondered the reality of biosimilars coming to market when it loses patent exclusivity as well as hits to margins due to R&D spending – first half revenues grew 4% but R&D expenses grew 22%. Clinuvel hopes that it can expand Scenesse into new indications, particularly for Vitiligo which could be several times larger than the EPP market.

As for Immutep (ASX:IMM), it was sold-off by 90% due to the discontinuation of TACTI-004. So the company is pivoting to eftilagimod alfa, or efti, in soft tissue sarcoma. The company has existing Phase 2 data to back up optimism as well as FDA Orphan Drug Designation.

Conclusion

Healthcare was the worst ASX 200 Sector in FY26 and there were legitimate reasons why the sector underperformed. But we think there is scope for the sector, or at least some of the worst-sold-off names, to have a better FY27. Execution will be key, of course, but the market opportunity is out there for these companies to capitalise.