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Yiling Pharmaceutical’s Lianhua Qingwen capsules have been out of stock in many parts of the country, with prices more than doubling in the southwestern city of Chengdu. Photo: SCMP Handout

Stock traders pile into makers of cold medicines, antigen test kits as China’s shift from zero-Covid spurs demand

  • Stock traders are quickly changing tack with their Covid-19 bets to position for China’s shift away from its harsh pandemic restrictions
  • Shijiazhuang Yiling Pharmaceutical, whose traditional Chinese cold medicine is officially used to treat Covid-19, has surged in the past month
Stock traders are quickly changing tack with their Covid-19 bets to position for China’s shift away from its harsh pandemic restrictions.
They have been chasing the companies that make cold medicines and antigens for coronavirus tests, betting that demand for these products will spike as China allows people to self-isolate at home and drops requirements for nucleic acid testing to encourage use of antigen test kits.

Hong Kong-listed Alibaba Health Information Technology, Ping An Good Doctor and JD Health International are also benefiting, on expectations that online drug sales and medical consultations will increase.

Shijiazhuang Yiling Pharmaceutical, whose flagship traditional Chinese medicine for the common cold is officially used to treat Covid-19, has jumped 45 per cent over the past month in Shenzhen.

Guangzhou Wondfo Biotech, Hangzhou Alltest Biotech and Shenzhen YHLO Biotech, which make antigen test kits, have gained at least 20 per cent in the onshore market in the same span.

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Excitement and anxiety as China starts to reopen after zero-Covid

Excitement and anxiety as China starts to reopen after zero-Covid
“The recent easing of Covid-19 restrictions has raised Chinese citizens’ awareness of self-protection against the pandemic, and may significantly boost the demand for Covid-19-related drugs in the short term,” Sunny Chen and Carol Dou, analysts at UOB Kay Hian, wrote in a note dated December 8.

The beneficiaries of the government’s easing of measures have withstood a recent pullback in the broader market, which has been whipsawed by growing concerns that the loosening of restrictions could spur a new wave of outbreaks that would dent the economic recovery.

Health officials’ attempts to reassure the public that the stockpiling of medicines is unnecessary have not deterred frenzied buying of Yiling Pharmaceutical’s Lianhua Qingwen, the Chinese herbal drug used by the government to treat Covid-19. The capsules have been out of stock in many parts of the country, with prices more than doubling in the southwestern city of Chengdu, according to local media reports.

Sales of antigen test kits have spiked in big cities like Guangzhou, one of the epicentres of the recent flare-up.

Sales of cold, fever, cough and anti-inflammatory drugs surged 18-fold in the online stores operated by JD Health in the seven days to December 4. Antigen test kit sales jumped 344 per cent in the same week, according to UOB.

Not everyone is jumping on the bandwagon. Some investors are warning that the jump in demand may be a flash in the pan and already priced in to the soaring stock prices, as was seen with coronavirus vaccine makers. Shares of Cansino Biologics have tumbled more than 70 per cent in the past 18 months, as the company struggles to find new sources of revenue after demand for vaccines fell sharply both at home and abroad.

“The high stock prices mean that they have priced in most of the optimism about demand and earnings,” said Wang Chen, a partner at Xufund Investment in Shanghai. “Investors particularly need to be aware of the risks of unsustainable demand for their products.

“The stocks will probably keep rising, going forward. But the key question is how long the run can last.”

In Hong Kong, Alibaba Health has jumped about 130 per cent over the past month, while JD Health and Ping An Good Doctor have rallied at least 60 per cent.

In spite of these hefty gains, optimism continues to mount. UOB has upgraded the rating on China’s internet healthcare industry to overweight, citing rising demand for coronavirus drugs and online consultations, as well as the rapid digitalisation in the nation’s healthcare system. Its favourite pick is Alibaba Health.

Dai Ming, a Shanghai-based fund manager at Huichen Asset Management, prefers pharmaceuticals to the consumer companies seen by some traders as benefiting most from the reopening of the economy.

“Contrary to some calls, consumer stocks may get crushed in the early days of loosening because of a possible spike in infections,” he said. “Drug stocks will be good investments and hedge against market volatility.”

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