Top Chinese mutual funds are buying Hong Kong-listed innovative drug stocks at the fastest pace in months, as capital rotates out of AI names into a sector that has spent four years in a bear market.
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Chinese funds pile into HK biotech as 3 managers trigger disclosure rules
E Fund, Fullgoal and China Universal each triggered disclosure thresholds within the past month by increasing holdings in multiple Hong Kong-listed innovative drug stocks, according to exchange filings. The buying spree marks one of the most concentrated institutional moves into the sector since the biotech bear market began in 2021.
"The rotation into Hong Kong biotech reflects a convergence of low valuations, improving clinical trial activity and policy support for innovative drug development," said Kevin Ip, an analyst covering Hong Kong equities. "Fund managers are looking beyond the AI trade for the next leg of returns."
Southbound capital flows through Stock Connect have also accelerated, with holdings in Mawei Biotech (邁威生物) and Keji Pharma (科濟藥業) rising sharply since June. The broader Hang Seng Healthcare Index has gained ground as institutional buyers target companies with strong pipelines and BD出海 (out-licensing) deal flow, which has continued to expand despite the sector's prolonged downturn.
The buying wave comes as the AI narrative enters a cooling phase, pushing fund managers to seek value in beaten-down corners of the market. Hong Kong-listed biotech stocks trade at valuations well below their historical averages, even as global industry-sponsored clinical trial starts recovered to 5,318 in 2024 — essentially back to the pre-Covid level of 5,316, according to IQVIA. Large pharmaceutical companies facing a wave of patent expirations are expected to acquire new drugs and technologies, providing a potential exit pathway for investors in these names.
What's driving the rotation
The shift into biotech is not a speculative bet on early-stage clinical data. Fund managers are targeting companies with approved products, recurring revenue streams and established out-licensing partnerships with global pharma. Policy tailwinds have also strengthened: Beijing has accelerated regulatory approvals for innovative drugs and expanded national reimbursement list coverage, reducing the commercial risk for developers.
The Hang Seng Index has traded in a range this quarter, with turnover below the 20-day average on several sessions as investors await clearer direction from China's economic recovery. The rotation into biotech offers a thematic trade that is less dependent on the broader macro outlook and more tied to company-specific catalysts such as clinical data readouts and partnership announcements.
A long-awaited recovery
Biotech has spent much of the past four years in a bear market, hurt by rising interest rates, weaker venture funding and investor fatigue toward healthcare innovation. Many of those headwinds are now reversing. The Federal Reserve's rate-cutting cycle, expected to resume later this year, would reduce the discount rate applied to future drug revenues and make biotech valuations more attractive.
For Hong Kong-listed biotech companies, the return of institutional buying through Stock Connect is a critical signal. Southbound flows have historically preceded broader re-ratings in the sector, as mainland fund managers tend to hold positions for longer periods than their global counterparts. If the current buying wave persists, it could attract follow-on demand from foreign investors who have been underweight Chinese healthcare since the 2021 peak.
This article is for informational purposes only and does not constitute investment advice.
