Morgan Stanley has issued a research report announcing the reinitiation of coverage on Innovent Bio (01801) with an "Overweight" rating and a target price of HK$130. The report indicates that China's biotech sector is entering a transitional phase this year, with fundamentals stabilizing, a resilient innovation foundation, ongoing licensing deals, and a continuous recovery in financing activities. However, during the first half of the year, against a backdrop of scarce catalysts, highly confident investment themes are limited, and risk appetite, particularly beta, remains unstable. Amid increasing geopolitical uncertainties, Morgan Stanley anticipates broader sector rotation towards de-risking, with high-beta, long-duration sectors like biotech likely facing greater allocation pressure. The firm expects China's biotech sector to experience range-bound movement in the first half of the year. Conversely, catalysts, capital reallocation, and more attractive valuations are expected to establish a foundation for clearer stock price direction in the second half. The next phase of growth is anticipated to begin with the concentrated emergence of meaningful data releases, business development activities, and increased visibility of licensing deals. As most significant events are concentrated in the second half of 2026, the bank believes further sector re-rating should be delayed rather than interrupted. Morgan Stanley forecasts that China's biotech sector will see range-bound fluctuations in the first half of the year, with direction becoming clearer in the second half. The first half is likely to remain volatile and primarily event-driven; as catalysts accumulate and overseas fund flows expand, a more sustained upward trend is anticipated in the latter part of the year.
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