(July 27): Investors looking for high-growth alternatives are turning to Chinese biotech as the rise of artificial intelligence gains momentum in emerging markets.
bloombergThe company’s EM Technology Index fell into a bear market last month as SK Hynix and Samsung Electronics, two leading names in the AI boom, fell 40% and 29%, respectively. In contrast, at least 10 Chinese pharmaceutical stocks posted double-digit gains, making healthcare the world’s best-performing sector. bloombergemerging market benchmark.
This rotation reflects growing wariness over overvaluation of AI and the concentration of profits in a few technology stocks. Rather than retreating to traditional defensive sectors, investors are looking for the next innovation-driven growth story, said Nelson Yu, New York-based head of equities at AllianceBernstein. Chinese biotech fits the bill as Chinese pharmaceutical companies expand globally through licensing deals with major multinationals.
“As investors grow increasingly concerned about the concentration of AI and AI-related investments, healthcare is increasingly seen as an attractive way to capture innovation, long-term growth and profitability with little correlation to AI deals,” Yu said.
Shares of drug developer CSPC Innovation Pharmaceuticals have soared 52% in the past month. The company is developing RNA-based treatments for kidney diseases and recently announced a deal in which AstraZeneca agreed to pay as much as US$1.8 billion (RM7.35 billion) for global rights to the treatment.
The deal epitomizes how China is disrupting the global pharmaceutical industry. Traditionally, large companies discovered many drugs in-house before outsourcing clinical trials and manufacturing to lower-cost providers. Increasingly, local companies develop new drug candidates and global companies pay licensing fees. Increasingly, revenue comes from the successful development of a drug, rather than just the unit of work performed.
Intellectual property is increasingly flowing from China to Western pharmaceutical companies, rather than the other way around, giving investors another reason to look to growth beyond technology.
NinetyOne portfolio manager Wenqiang Ma said this change in the way pharmaceutical research is conducted, and China’s growing role in it, makes the country’s pharmaceutical sector a long-term structural bet.
“China is transitioning from a generic drug maker to an innovation leader,” she said. “Our pipeline of innovative products and license-out agreements is rapidly growing and attracting more investor attention.”
There was also a rise in health care stocks in the US, but it was mainly driven by mega-cap companies such as Eli Lilly & Company and Johnson & Johnson. But in emerging markets, the leaders of the rally are small, innovative companies that are little known outside of China.
On Monday, the EM Healthcare index rose 0.6%, with Imake Technology Development and Biocytogen Pharmaceuticals each gaining at least 4.3%.
Marcus Weiler, investment strategist at Franklin Templeton, said China’s move into innovative medicines could also protect biotech companies from tariffs proposed by President Donald Trump.
“Biotechnology is becoming another reason to invest in China,” he said. “If you think about where investors are finding innovation today, it’s in technology, AI, and even biotech.”
