The turnaround has been sharp.
The S&P/ASX 200 Health Care Index (ASX: XHJ) hit a nine-year low on 3 June 2026, having fallen 39% over the prior twelve months.
Since then, the index has risen by 21% in just one month, compared with a 0.7% rise in the broader S&P/ASX 200 (ASX: XJO) index over the same period.
CSL Ltd (ASX: CSL), Cochlear Ltd (ASX: COH), and ResMed Inc (ASX: RMD) are all up.
The question is whether this recovery is real, or whether the sector has simply bounced from deeply oversold levels.
Image source: Getty Images
What drove the selloff in the first place
Understanding the recovery requires understanding what caused the fall.
Healthcare was the worst-performing sector of all eleven ASX 200 market sectors in FY26.
The sector was hit by a combination of factors specific to individual companies and broader macro forces.
A stronger Australian dollar eroded the offshore profits of CSL, which generates most of its revenue in the United States. Rising interest rates weighed on the valuations of high-multiple growth stocks across the sector. Earnings downgrades at CSL and Cochlear removed the premium earnings trajectory the sector had traded on for years. And a rotation toward energy and resources stocks pulled capital away from healthcare regardless of individual company fundamentals.
CSL: the most important recovery to watch
CSL is up 32% since 3 June, but remains down close to 50% over the past twelve months.
The FY26 result, due on 19 August 2026, will be the most important test of whether the recovery has earnings support or is simply a valuation rebound.
Management has pointed to improving Behring division revenue in the second half of FY26 as the key catalyst.
Morgans retains a buy rating on CSL with a price target of $147.59. However, the broker acknowledges that a sustained recovery in sentiment may take several quarters to fully materialise as the market waits for proof in the numbers.
ResMed: the most compelling valuation story
ResMed is up 18% since 3 June but remains at its lowest valuation in over a decade.
Morgans has retained its buy rating on ResMed with a price target of $41.72. The broker noted that the stock has de-rated to just 16 times forward earnings despite the market continuing to forecast double-digit earnings per share growth.
Morgans points out that while GLP-1 therapy risks exist, current industry data and operational performance continue to support the long-term investment case.
Q2 FY26 showed ResMed revenue rising 11% to $1.42 billion with net income up 14%, confirming the underlying business is growing strongly despite the macro noise.
Cochlear: the longest road back
Cochlear is up 31% since 3 June but remains the most deeply impaired of the three. Cochlear shares are still down approximately 52% year to date and 58% over twelve months.
The majority of brokers covering the stock still carry a hold rating, with the consensus price target of $137.10 implying only modest further upside at current levels.
Bell Potter's Christopher Watt said that while near-term trading challenges persist, the long-term opportunity remains compelling. The broker added that until there is clearer evidence that volumes are stabilising, a more balanced stance is appropriate.
Is the recovery sustainable for ASX healthcare shares?
The honest answer is that the recovery has largely been driven by sector rotation rather than a genuine improvement in underlying fundamentals.
That matters because sector rotation can reverse just as quickly as it appears.
The August reporting season will be the real test.
CSL's FY26 numbers, due 19 August, will either confirm that the Behring margin recovery is tracking as management described or force another round of earnings estimate cuts.
For investors who believe the long-term investment cases for CSL, ResMed, and Cochlear are intact, the current entry points, even after a 21% sector rally, look more attractive than anything available in the past five years.
For investors looking for a quick trade, the easy part of the recovery may already be done.
Foolish takeaway for ASX healthcare shares
ASX healthcare shares surged 21% in a month from a nine-year low.
CSL, ResMed, and Cochlear have all participated meaningfully in that recovery.
Whether the rally continues depends on the August reporting season delivering the earnings support that sector rotation alone cannot provide indefinitely.
