China healthcare becomes the core non-AI allocation theme amid AI volatility

Overview

Based on feedback from more than 30 in-person client meetings held by HSBC over the past two weeks in Singapore, Hong Kong, and Shanghai, this report discusses the allocation logic for China's healthcare sector after changes in AI themes. The report points out that, as AI-related capital loosens, funds flow into technology and consumer sectors, and the market searches for non-AI offensive sectors, China's healthcare sector has become a direction with rising consensus due to innovation, globalization, and earnings catalysts.

Core views

The core view is that China's healthcare sector remains underowned, and the recent rally reflects more of a delayed re-rating driven by value discovery and 1H26 business momentum rather than a short-term trading rebound. HSBC believes CDMO and innovative drugs have clearer global growth narratives. Wuxi Biologics and Pharmaron benefit from expectations of accelerating growth and margin expansion in FY26-28, while Innovent and Kelun Bio benefit from domestic growth and greater globalization visibility. The next phase of catalysts includes U.S. commercialization, ESMO data, and Harmoni 3 data.

Analysis framework

The report uses a framework combining client roadshow feedback, sector relative performance, capital rotation logic, industry policy risk, company growth quality, and clinical/commercialization catalysts to assess the relative attractiveness of China's healthcare sector during AI volatility.

Methodology notes

• Market sentiment and capital rotationClient meeting feedback analysis

  Identify changes in investor types, focus themes, and market debates through in-person client meetings.

  The report uses feedback from more than 30 client meetings as a primary input, observing the shift from specialist healthcare funds to generalist and technology fund managers.

• Industry comparisonRelative performance analysis

  Compare the staged performance of healthcare indices with the HSI and CSI300.

  By examining the rebound magnitude of China A/H healthcare indices since June 26 and their relative outperformance, the report measures sector heat and the strength of capital rotation.

• Company selectionGlobal growth story

  Screen for healthcare companies with overseas commercialization, BD momentum, clinical data, and potential for accelerated growth.

  The report favors companies in CDMO and innovative drugs that have global expansion and data readout catalysts.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Wuxi Biologics (2269.HK)

  HSBC maintains Buy; one of its preferred CDMO names.

  Strengths

  Strong expectations for accelerated growth, margin expansion, and a globalization business story.

  Weaknesses

  Affected by industry policy, overseas regulation, and customer order timing.

  Comparison

  Compared with some healthcare names, it benefits more directly from CDMO globalization and outsourcing demand.

  Risks

  Biosecure Act-related lists in the U.S. and restrictions on cross-border biotech transactions may affect market sentiment.

• Pharmaron (3759.HK; 300759.SZ)

  HSBC maintains Buy; one of its preferred CDMO names.

  Strengths

  Expectations for accelerated FY26-28 growth and margin expansion are attracting attention.

  Weaknesses

  Its dual listing in A/H shares may expose it simultaneously to differing market risk preferences.

  Comparison

  Like Wuxi Biologics, it belongs to the report's preferred CDMO segment.

  Risks

  Policy, overseas orders, and uncertainty in cross-border regulation.

• Keymed (2162.HK)

  HSBC maintains Buy; a preferred innovative drug/biotech name.

  Strengths

  Benefits from catalysts in innovative drug clinical data, commercialization, and globalization.

  Weaknesses

  Uncertainty remains around clinical progress and commercialization delivery.

  Comparison

  Like Innovent, it is in the report's preferred biotech segment.

  Risks

  Clinical data, commercialization progress, and policy pricing risks.

• Innovent Biologics (1801.HK)

  HSBC maintains Buy and it is favored by both generalist and specialist investors.

  Strengths

  Strong domestic growth and relatively high visibility of its globalization story.

  Weaknesses

  Valuation and expectations may be affected by interim results and product commercialization performance.

  Comparison

  Within the biotech/pharmaceutical sector, it is, together with Kelun Bio, a preferred investor direction.

  Risks

  U.S. commercialization progress, clinical data, and changes in the policy environment.

• China A/H healthcare indices

  The industry allocation theme discussed in the report.

  Strengths

  Supported by underownership, non-AI rotation, innovation-driven growth, and globalization stories.

  Weaknesses

  After the short-term rebound, sustainability remains the market's core debate.

  Comparison

  Has clearly outperformed the HSI and CSI300 since June 26.

  Risks

  If AI becomes the market focus again, capital may flow out of the healthcare sector.

Key data

• Number of client meetingsMore than 30Held over the past two weeks in Singapore, Hong Kong, and Shanghai.
• Rebound in China A/H healthcare indices16%/11%Since the low on June 26, 2026.
• Relative performance vs. HSIOutperformed by 7 percentage pointsComparison over the same period.
• Relative performance vs. CSI300Outperformed by 19 percentage pointsComparison over the same period.
• Market-expected rebound windowUntil around July 31, 2026 or September 1Investors believe it may continue into the interim results release period.
• Recent price of Innovent BiologicsHKD 92.501801.HK, price date is July 20, 2026.
• Recent price of KeymedHKD 87.202162.HK, price date is July 20, 2026.
• Recent price of PharmaronHKD 23.483759.HK, price date is July 20, 2026.
• Recent price of Pharmaron ACNY 37.28300759.SZ, price date is July 20, 2026.
• Recent price of Wuxi BiologicsHKD 38.262269.HK, price date is July 20, 2026.

Impact & implications

If AI theme volatility intensifies, China's healthcare sector may continue to receive incremental allocation as a non-AI offensive sector. The globalization, BD, and clinical data catalysts of CDMO and innovative drugs are expected to drive valuation re-rating, but policy, anti-corruption, Biosecure Act-related restrictions in the U.S., and capital rotating back into AI themes are the main constraints.

Risks

• Domestic policy uncertainty, including biosimilar VBP, medical device VBP, and repricing of public hospital medical service prices.
• A renewed rise in AI themes may lead to capital rotating out of the healthcare sector.
• Biosecure Act lists and legislation in the U.S. may restrict cross-border biotech BD transactions.
• Anti-corruption actions have lowered market expectations for growth in pharmaceuticals, medical devices, and hospitals.
• If interim results, clinical data, or overseas commercialization progress fall short of expectations, the valuation re-rating thesis may weaken.

What to watch

• 2026 interim results disclosures and the realization of 1H26 growth.
• Progress of U.S. commercialization by Chinese biotech companies.
• ESMO data readouts.
• Harmoni 3 data.
• Changes in CDMO order growth, margin expansion, and FY26-28 growth expectations.
• The impact of domestic VBP, medical service price adjustments, and anti-corruption policies on demand.
• Developments related to the U.S. Biosecure Act and their impact on cross-border BD and CDMO sentiment.