China health stocks slammed as investors fear regulators' diagnosis

JD Health International

28/07/2021 08:35

SHANGHAI, July 28 (Reuters) - Investors have rushed to exit
bets on China's health sector this week, acting on a hunch that
the regulatory scrutiny that sparked panic selling in the tech
and education sectors might next hit the medical industry.
    Medical expenses are one of three key areas of living costs
seen as Beijing's targets for social change, heightening
expectations that authorities will make healthcare their next
focus of market reform.  urn:newsml:reuters.com:*:nL4N2P31TZ
    "Real estate, education, and healthcare are the three big
mountains and the government inevitably has to tackle the
issues," said Ming Liao, founding partner of Beijing-based
private equity firm Prospect Avenue Capital.
    Selling has been fierce and although the Hang Seng
healthcare index  .HSHCI  bounced on Wednesday, it is down about
11% for the week compared with a similar drop in the hard-hit
Hang Seng Tech index  .HSTECH  and a 7.2% week-so-far plunge in
the broader Hang Seng index  .HSI .
    Among mainland stocks, the CSI300 Healthcare index
 .CSI300HC  was in freefall from Thursday until it steadied on
Wednesday, shedding roughly 13% in the process, trailing a 20%
fall suffered by education stocks  .CSI930717  but outstripping
the broader market  .CSI300 .
    "I think obviously (small investors) have panicked," said
Andy Maynard, head of equities at China Renaissance in Hong
Kong, who feels the rout may have been a bit overdone.
    Among the worst hit stocks are those with a tech overlap: JD
Health International  6618.HK , Alibaba Health Information
Technology  0241.HK  and Genscript Biotech Corp.  1548.HK ,
racked up losses between 27% and 36% over the past five days.   
    China's health sector is vast, comprising defensive service
providers, pharmaceuticals and fast-growing tech and biotech
firms, though it had been seen as exposed to big demographic
trends and supported by rising public and private spending.
    Reforms over the past decade have sought to expand social
health insurance, public procurement of medicine and hospital
building. Last month, China's State Council, or cabinet,
promised further progress on medicine prices.
    Huang Yan, vice president of Shanghai See Truth Investment
Management, said the government would likely take a targeted
approach to tackling different parts of the sector in its drive
for social reform.
    "Sectors like cosmetic medicine consume wealth but create
little social value," he said. "But the government will continue
to support innovative drugmaking, while reducing drug prices
through bulk-buying."
    Still, while costs remain high and quality of care has been
an issue outside big cities, analysts are nervous about where
the authorities' next move lands.
    "The jittery...search for the next shoe to drop may keep
investors away from engaging for now," said Tommy Xie, OCBC
Bank's head of greater China research.

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FACTBOX-From education to bitcoin, China's season of regulatory
crackdown     urn:newsml:reuters.com:*:nL4N2P31JT
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 (Reporting by Samuel Shen and Andrew Galbraith in Shanghai.
Writing and additional reporting by Tom Westbrook. Editing by
Vidya Ranganathan and Sam Holmes)
 ((tom.westbrook@tr.com; +65 6973 8284;))