The Aussie technology sector has been a real winner for investors so far this year with the “WAAAX” group of stocks soaring higher so far this year.
The Afterpay Touch Group Ltd (ASX: APT) share price has surged 175% higher since the start of the year and the WiseTech Global Ltd (ASX: WTC) share price has soared a tidy 112% higher, but the good run for the ASX tech sector could be coming to an end.
Here are a few reasons why I think some of our ASX healthcare stocks could turn the tide and strongly outperform in 2020.
The US–China trade war continues to rage on
The Aussie tech stocks remain very vulnerable to further inflammations in the long-running US–China trade war saga, which is yet to see signs of a resolution.
We saw many of the WAAAX share prices plummet 15% lower in early August as the tit-for-tat on import tariffs continue to ramp-up, before a reasonably strong earnings season turned things around for shareholders.
Given the reliance on both the US and China for significant pipeline demand, further trade disruption could lead to further capital losses in 2020 for the ASX tech stocks.
Healthcare is traditionally countercyclical
Given where we appear to be at in the economic cycle, I think a portfolio tilt towards defensive sectors such as Energy and Healthcare can provide a good hedge for ASX investors.
If all of this talk about a recession is proven correct in the next 6–12 months, I would expect those holding healthcare stocks to fare better than Fools with a tech-centric portfolio.
Healthcare has barriers to entry
While the ASX tech stocks are certainly innovative in their own niches, question marks remain around barriers to entry for certain stocks.
However, the Healthcare sector has notoriously high barriers to entry, largely due to significant research and development costs driving up capex for these companies.
These two ASX giants boast market caps of $106.4 billion and $12.0 billion, with WiseTech and Xero Ltd (ASX: XRO) being the closest amongst the WAAAX group with valuations of $11.5 billion and $9.0 billion, respectively.
You’d have to be a fool to write off further upside gains from the WAAAX stocks given their recent history, but it does seem as though the tide may be turning in 2020.
What it boils down to is your expectations for the macro environment in 2020 and whether the ASX healthcare stocks are the best way to ride out any potential storm.
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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO, Cochlear Ltd., CSL Ltd., WiseTech Global, and Xero. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.