Why Is Healthcare the Best Non-AI Sector?

The Chinese healthcare sector is becoming a core safe haven for global capital amid volatility in AI-themed market trends. Since bottoming out on June 26, 2026, the H-share and A-share healthcare indices have rebounded by 16% and 11% respectively, significantly outperforming the broader market, as an innovation-driven globalization narrative continues to attract capital inflows into the sector.

According to Zhuifeng Trading Desk, over 30 offline roadshows held by HSBC Qianhai Securities in Singapore, Hong Kong, and Shanghai revealed that the investor profile has expanded from specialized healthcare investors to include general industry investors and technology fund managers, indicating that the appeal of the healthcare sector is penetrating across different investor circles. The report stated:

Amid volatility in AI-themed market trends, focusing on Chinese healthcare companies (especially those with global growth prospects) is becoming a market consensus.

Investors generally believe that this rebound will last at least until July 31 or September 1, when interim results are released, based on the fundamental logic that the market is "catching up" on the strong fundamentals already evident in the first half of the year.

HSBC Qianhai Securities maintains its buy ratings for WuXi Biologics, Pharmaron, ConnoMed, and Innovent Biologics, believing that the healthcare innovation industry offers both short-term catalysts and long-term potential, with global business expansion and strong clinical data continuing to drive growth.

What Drives the Rebound: Resonance of Three Capital Logics

The rapid rebound in the healthcare sector is not due to a single factor.

According to feedback from HSBC Qianhai Securities' roadshows, investors attribute this rally to the superposition of three logics:

First, AI-related funds actively reduced positions, shifting capital to sectors with more attractive valuations; Second, based on favorable earnings expectations for the first half of 2026, capital flowed from AI, technology, and consumer sectors into healthcare; Third, the market rotated into non-AI sectors, positioning the healthcare sector—with its innovation-driven global prospects—as an attractive target.

As a result, the H-share healthcare index rebounded 7 percentage points more than the Hang Seng Index during the same period, while the A-share healthcare index outperformed the CSI 300 Index by a significant 19 percentage points.

What Institutions Favor Most: Outsourcing and Biotech Lead the Way

In terms of sub-sector allocation, global investors favor pharmaceutical outsourcing and biotech/pharmaceuticals the most.

In pharmaceutical outsourcing, investors have heavily positioned themselves in WuXi AppTec, primarily due to high market expectations for its performance in the first half of 2026. WuXi Biologics and Pharmaron are also viewed positively, with the core logic being their prospects for accelerated growth from 2026 to 2028 and the potential for margin expansion.

WuXi AppTec's first-half performance greatly exceeded expectations, achieving revenue of RMB 28.898 billion (+38.9%) and net profit attributable to shareholders exceeding the RMB 10 billion mark for the first time in a half-year period, reaching RMB 11.080 billion (+33.7%). Adjusted net profit stood at RMB 11.570 billion (+83.2%). Notably, the company raised its full-year revenue guidance from 18%-22% to 35%-39% in one go, and increased capital expenditure guidance from RMB 6.5-7.5 billion to RMB 7.5-8.5 billion—a first in the company's history.

In biotech and pharmaceuticals, both general industry investors and specialized healthcare investors maintain a positive outlook on Innovent Biologics and Kelun Biopharm, mainly due to their strong domestic business growth and visible prospects for overseas business development (BD). Additionally, CSPC Pharmaceutical Group and Hansoh Pharmaceutical were widely discussed during the roadshows due to their business development momentum and expectations for valuation sum-of-the-parts analysis.

How Far Can the Rebound Go?

Despite the significant improvement in sentiment, investors still have three core concerns regarding the sector.

First, policy uncertainty remains, including the unclear pace of progress in centralized procurement of biosimilars for public hospitals, centralized procurement of medical devices, and reforms in medical service pricing. Second, if AI-themed market trends return, related capital may flow out of the healthcare sector again. Third, there are risks associated with external related policies.

Furthermore, the market has lowered growth expectations for pharmaceutical companies, medical device manufacturers, and hospitals due to the ongoing anti-corruption campaign in the healthcare sector.

HSBC Qianhai Securities pointed out that key catalysts to watch for in the Chinese biotech sector include: the commercialization progress of relevant companies in the US market, data readouts from the ESMO annual meeting, and the release of Harmoni 3 data.