The Chinese healthcare sector is increasingly seen as a primary safe haven for global capital during periods of volatility in the AI theme. Since bottoming on June 26, 2026, the H-share and A-share medical indices have rebounded by 16% and 11% respectively, significantly outperforming the broader market. This rally is driven by a focus on innovation-led globalisation, attracting sustained capital inflows into the sector.
According to feedback from over 30 roadshows conducted by HSBC Qianhai Securities in Singapore, Hong Kong, and Shanghai, the investor base has expanded beyond dedicated healthcare investors to include generalist industry investors and technology fund managers. This indicates that the appeal of the healthcare sector is broadening across different investment circles. The report notes that during AI theme fluctuations, focusing on Chinese healthcare companies—especially those with global growth prospects—is becoming a market consensus.
Investors widely believe this rebound will extend at least until the interim results release period around July 31 or September 1. The underlying logic is that the market is 'catching up' to the already strong fundamentals seen in the first half of the year.
HSBC Qianhai Securities maintains buy ratings on WuXi Biologics, Pharmaron, Convalife, and Innovent Biologics. The firm believes that the medical innovation sector offers both near-term catalysts and long-term potential, with global business expansion and strong clinical data continuing to drive growth.
What is driving the rebound: A triple force of capital flows
The rapid rebound in the healthcare sector is not due to a single factor. Based on HSBC Qianhai Securities roadshow feedback, investors attribute the rally to a combination of three forces: First, AI-related funds are actively reducing positions and reallocating capital to sectors with more attractive valuations. Second, based on strong earnings expectations for the first half of 2026, capital is flowing from AI, technology, and consumer sectors into healthcare. Third, a market rotation away from AI is positioning the healthcare sector, with its innovation-driven globalisation prospects, as a positive target.
As a result, the H-share medical index has outperformed the Hang Seng Index by 7 percentage points during the same period, while the A-share medical index has outperformed the CSI 300 Index by a substantial 19 percentage points, generating significant excess returns.
What institutions prefer most: Contract outsourcing and biotech lead the way
In terms of sub-sector allocations, global investors favour two main areas: contract outsourcing (CXO) and biotechnology/pharmaceuticals. In the CXO space, investors are heavily positioned in WuXi AppTec, driven by high expectations for its first-half 2026 performance. WuXi Biologics and Pharmaron are also well-regarded, with the core logic centred on their accelerated growth prospects from 2026 to 2028 and potential for margin expansion.
WuXi AppTec's first-half results significantly exceeded expectations. The company reported revenue of RMB 28.898 billion, up 38.9% year-over-year, while net profit attributable to shareholders surpassed RMB 10 billion for the first time in a half-year period, reaching RMB 11.08 billion, a 33.7% increase. Adjusted net profit was RMB 11.57 billion, up 83.2%. More notably, the company raised its full-year revenue guidance from 18%-22% to 35%-39%—a first in its history—and increased its capital expenditure guidance from RMB 6.5-7.5 billion to RMB 7.5-8.5 billion.
In the biotechnology and pharmaceutical sector, both generalist and specialist investors maintain a positive outlook on Innovent Biologics and Kelun-Biotech, driven by strong domestic business growth and visible overseas business development (BD) prospects. Additionally, CSPC Pharmaceutical Group and Hansoh Pharmaceutical Group were widely discussed during roadshows due to their commercial expansion momentum and potential for valuation spin-offs.
How far can the rebound go?
Despite improved sentiment, investors still identify three core areas of debate regarding the sector. First, policy uncertainties remain, including the progress of volume-based procurement for biosimilars in public hospitals, procurement for medical devices, and the pace of medical service price reforms, all of which are unclear. Second, if the AI theme returns, related capital could flow back out of the healthcare sector. Third, there are risks associated with external policies.
Furthermore, the market has lowered growth expectations for pharmaceutical companies, medical device firms, and hospitals due to the ongoing anti-corruption campaign in the healthcare sector.
HSBC Qianhai Securities points out that future catalysts for the Chinese biotech sector include commercialisation progress by relevant companies in the U.S. market, data readouts at the ESMO annual meeting, and the release of Harmoni 3 data.
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