China’s health stocks got off to worst start in six years

 China’s healthcare stocks were hit again last week with the worst start since 2016. Sales resumed amid concerns over Beijing’s plans to reduce health care costs and stricter drug development rules.

The CSI 300 Health Care Index plummeted 5.5% in the first week of trading. This is more than double the broader benchmarks on the mainland, driven by the names of biotechnology and medicines. Losses were the largest ever decline, led by Asymchem Laboratories Co. Ltd., which fell 19% last week.

A year-long radical regulatory crackdown on private companies, from tech giants to real estate developers, has also hit healthcare companies. They are working on unexpected changes in R & D policies and lowering profits from drug price cuts. The sector is currently trading at 33 times the 12-month futures price-earnings ratio, from nearly 55 times last February.

The decline is also tracking the Healthcare Index, which fell 4.7% last week as rising bond yields weighed on demand from companies that were not yet profitable.

“Beijing’s policy uncertainty remains an overhang in this sector,” said Mia He, an analyst at Bloomberg Intelligence. New regulatory measures, including oncology drug development guidance, have put some pressure on biotechnology and pharmaceutical companies to provide contract services since late 2021.

These draft guidelines, released last year, have plagued investors as they could delay drug approval and raise the bar for innovative medicines.

The sector was also in a difficult situation of intensifying US-China relations last month. Stocks put in tanks because investors speculate that they may be added to the list of sanctioned companies in the United States have not fully recovered, even if they are not finally on the list.

Investors should expect ongoing short-term volatility from potential key policies in the first quarter that shape clinical trial practices. Citigroup Inc (NYSE :). Analysts, including John Yong, wrote in a January 5th note. However, the drug’s name could be “bottomed out,” and they said it could recover its reputation against the backdrop of new product launches, clinical developments, mergers and acquisitions.

A rare and illustrious point is the traditional herbal medicine sector, led by Beijing Tong Ren Tang, after the medicines of these companies were included in the national medical insurance. This reflects the industry’s source of pride in countries that count Xi among their supporters.

However, the lack of new products could slow growth in the future, so it remains questionable whether the rally can be maintained, Citigroup said.

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