China healthcare becomes the preferred non-AI main theme amid AI volatility

Overview

This report is HSBC Qianhai's marketing feedback and industry update on China's healthcare sector. Based on more than 30 in-person client meetings over the past two weeks in Singapore, Hong Kong, and Shanghai, the authors discussed how to position China's healthcare sector amid changing AI narratives. The report believes that, against the backdrop of AI-theme volatility and capital rotation, Chinese healthcare companies with globalized innovation stories are becoming consensus trades.

Core views

The core view is that China's healthcare sector remains relatively attractive after the recent rebound, especially in CDMO, biotech, and innovative drugs. The market believes the rebound has been driven by loosening AI capital, inflows from AI/technology/consumer funds, and rotation into non-AI sectors with globalization stories. The report is positive on Wuxi Bio, Pharmaron, Keymed, and Innovent, and believes the healthcare innovation sector offers both short-term catalysts and long-term potential.

Analysis framework

The report mainly uses a combination of client interview feedback, sector performance comparison, position changes, and company valuation and risk review. At the industry level, it focuses on the performance of A/H healthcare indices, northbound and southbound holding changes, and popular themes; at the company level, it uses valuation frameworks such as DCF, combined with target prices, upside potential, and key downside risks to form investment judgments.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  The report uses DCF models for companies such as Wuxi Biologics and Pharmaron, with key assumptions including WACC, risk-free rate, market risk premium, terminal growth rate, and exchange rate or discount assumptions.

• Sentiment and fund flowsClient meeting feedback

  Investor marketing feedback

  Based on more than 30 in-person client meetings, the report summarizes the focus areas and controversies after investor interest expanded from specialist healthcare funds to broad-market funds and technology fund managers.

• Rating systemHSBC stock rating framework

  Target price upside relative to current price

  Under HSBC's rating definitions, a target price more than 20% above the current share price usually corresponds to a Buy rating; the target price reflects the value that analysts expect the market price may recognize over the next 6 to 12 months.

Asset mapping & comparison

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

• Wuxi Biologics (2269.HK)

  Preferred by the report and Buy maintained

  Strengths

  Global CDMO growth, expected FY26-28 growth and margin expansion, and DCF target price implying about 22% upside.

  Weaknesses

  Highly affected by U.S. client demand, capacity utilization, and overseas regulation.

  Comparison

  Compared with general healthcare services or sectors constrained by policy, it has a clearer global growth story.

  Risks

  U.S. restrictive legislation, impact of U.S. tariffs, high interest rates suppressing biotech financing, overcapacity, and tighter regulation.

• Pharmaron (300759.SZ / 3759.HK)

  Preferred by the report and Buy maintained

  Strengths

  Recovery in financing drives a rebound in demand, with A/H-share target prices implying about 15%/31% upside respectively.

  Weaknesses

  Intensifying competition may pressure margins, and project delivery and stability of major clients are important.

  Comparison

  Like Wuxi Bio, it is a preferred CXO/CDMO-related name, benefiting from global outsourcing demand and industry recovery.

  Risks

  Geopolitics and supply chain relocation, margin pressure due to competition, higher regulatory standards or approval delays, project delivery failures, and foreign exchange volatility.

• Keymed (2162.HK)

  Preferred by the report and Buy maintained

  Strengths

  Its innovative drug pipeline and globalization story are attracting attention, with Claudin 18.2 ADC listed as a 2026 NDA-related focus.

  Weaknesses

  Commercialization delivery and clinical data still need to be validated.

  Comparison

  Along with biotech companies such as Innovent and Kelun Bio, it is in the innovative drug segment drawing investor attention.

  Risks

  Clinical data missing expectations, approval or commercialization delays, and changes in policy and the payment environment.

• Innovent Biologics (1801.HK)

  Preferred by the report and Buy maintained

  Strengths

  Strong domestic growth, visible globalization story, and attention on product milestones such as PD1/IL2.

  Weaknesses

  Valuation and market expectations depend on subsequent commercialization and data delivery.

  Comparison

  Favored by both broad-market investors and specialist healthcare investors, and is one of China's consensus biotech names.

  Risks

  Uncertainty in clinical data, overseas commercialization, BD transactions, and the policy environment.

• Kelun Bio

  Mentioned by the report as a biotech name favored by investors

  Strengths

  Its domestic growth and globalization story are recognized, with Trop2 ADC listed as a 2026 NDA focus.

  Weaknesses

  The report does not provide a separate rating or target price.

  Comparison

  Like Innovent, it is one of the companies heavily discussed by investors in the biotech/innovative drug segment.

  Risks

  Uncertainty in clinical development, approval, commercialization, and BD transactions.

Key data

• A-share healthcare index rebound16%Rebounded since the low on June 26, 2026.
• H-share healthcare index rebound11%Rebounded since the low on June 26, 2026.
• Performance relative to HSI+7 percentage pointsOver the same period, China's H-share healthcare index outperformed the HSI.
• Performance relative to CSI300+19 percentage pointsOver the same period, China's A-share healthcare index outperformed the CSI300.
• Number of client meetingsmore than 30Held over the past two weeks in Singapore, Hong Kong, and Shanghai.
• Northbound holdings change: CXO9.93% in 2Q26, +2.90 percentage points QoQThe northbound holdings table shows a QoQ increase in CXO holdings.
• Southbound holdings: Biotech32.91% in 2Q26The southbound holdings table shows biotech remains a highly held sector.
• Wuxi Biologics current price and target priceHKD38.26 / HKD46.80The report maintains Buy, with the target price implying about 22% upside.
• Pharmaron A-share current price and target priceRMB37.28 / RMB42.80The report maintains Buy, with the A-share target price implying about 15% upside.
• Pharmaron H-share current price and target priceHKD23.48 / HKD30.80The report maintains Buy, with the H-share target price implying about 31% upside.

Impact & implications

The implication of the report is that even as AI themes regain market attention and may cause capital rotation, China's healthcare sector may still offer allocation value through globalized innovation, CDMO demand, commercialization, and clinical data catalysts. If interim results, BD momentum, and overseas commercialization progress materialize, the sector rebound may continue; however, policy and geopolitical regulatory risks will affect sustainability.

Risks

• Domestic policy uncertainty, including biosimilar VBP, medical device VBP, and repricing of public hospital medical service prices.
• AI themes regaining attention, which may lead to capital rotating out of the healthcare sector.
• The U.S. Biosecure Act list and legislation may restrict cross-border biotech BD transactions.
• The impact of anti-corruption measures has led the market to lower growth expectations for pharmaceuticals, medical devices, and hospitals.
• U.S. tariffs, high interest rates, financing conditions, and geopolitics may affect CDMO and biotech demand.

What to watch

• The 2026 interim results disclosure window, with the market expecting the rebound may continue through around July 31 or before around September 1.
• Commercialization progress of Chinese biotech companies in the U.S. market.
• ESMO data release.
• Harmoni 3 data.
• Lists and legislative progress related to the U.S. Biosecure Act.
• The impact of domestic VBP, medical service price adjustments, and anti-corruption policies on demand for pharmaceuticals, medical devices, and hospitals.