By Charlie Zhu, Bloomberg Markets live reporter and strategist
China’s biotech stocks are emerging as the latest AI trade, fueled by expectations the technology will accelerate drug development and boost returns.
The Hang Seng Biotech Index has risen nearly 22% this quarter, set to outperform the Hang Seng Tech gauge by the most on record in Bloomberg data going back to 2015, as investors bet artificial intelligence will reduce timelines and cost in pharmaceutical research and development. The prospect of AI-originated drugs generating licensing and royalty income in the longer run may give the rally staying power.
“AI-driven drug discovery (AIDD) is taking off in China and generating a lot of investor interest, owing to the speed and cost benefits that AI brings,” Citigroup Inc. analysts including John Yung wrote in a note this month. The sector’s low penetration of the projected $313 billion global pharmaceutical R&D market implies “significant room for growth.”
Shares of Insilico Medicine Cayman TopCo have more than doubled since their debut in Hong Kong in end-December, while those of Shanghai-listed HitGen Inc. have gained nearly 40% this year following a 90% rally in 2025. Both companies have buy ratings from every analyst tracked by Bloomberg.
Unlike many US companies that remain loss-making, several Chinese leaders are already profitable and should see earnings accelerate as robust demand translates into stronger utilization and operating leverage, according to Citigroup. Strong growth in AI-related revenue from leading wet lab vendors — which test AI-designed drugs — in the first half and advances of drug candidates at companies such as Insilico have bolstered sentiment toward the sector.
Leading Chinese AIDD companies are also trading at steep discounts to their US peers despite broader exposure across the value chain, analysts said. Meanwhile, continued progress in clinical milestones and new partnerships offer catalysts for local players, Linda Shu, head of China healthcare research at HSBC Qianhai Securities, said in a note.
To be sure, competition remains a concern as contract research organizations, drugmakers and private platforms may expand into AIDD, while disruptive technologies could erode the advantages of existing platforms. Broader doubts about the sustainability of AI investment may also weigh on shares.
Still, “China has a strong combination of scientific talent, a large innovative-drug pipeline and extensive drug contract manufacturing infrastructure for synthesizing and testing AI-generated molecules,” said Victoria Mio, a portfolio manager at Janus Henderson Group Plc. Investors will be focused on “proprietary data, internal pipeline progress, pharmaceutical partnerships, licensing economics and cash runway,” she said.