Pharma and funeral stocks rally as investors ride China’s Covid exit wave

Stocks of Chinese drugmakers, breweries and funeral services have stormed back into fashion as investors try to profit from a coronavirus exit wave as the world’s most populous country loosens pandemic restrictions.

Over the past week, a clutch of Chinese pharmaceutical companies have been among the top performers on bourses in Hong Kong, Shanghai and Shenzhen.

Amid expectations of booming demand for fever medicine and other drugs, mainland China-listed shares of pharma companies Guangzhou Baiyunshan Pharmaceutical and Hualan Biological Engineering each gained more than 10 per cent over the past five trading days while Shanghai Fosun Pharmaceutical added 7 per cent.

Shijiazhuang Yiling Pharmaceutical, which produces the government-endorsed herbal treatment Lianhua Qingwen, has added 11 per cent over the same period.

That compares to a 0.3 per cent decline for the CSI 300 index of Shanghai- and Shenzhen-listed shares.

The rally was sparked by President Xi Jinping’s move last week to abandon his zero-Covid strategy of mass testing, quarantines, citywide lockdowns and fastidious electronic contact tracing.

The U-turn has led to China’s biggest uncontrolled wave of coronavirus cases since the pandemic started in Wuhan, central China, nearly three years ago. The decision has stoked fears of a rise in deaths and hospitalisations, especially among tens of millions of elderly Chinese who have not received the three vaccine doses required for sufficient protection.

Also attracting investors is Shanghai-based Fu Shou Yuan International, China’s biggest funeral services provider and seller of burial plots.

The Hong Kong-listed group is up 6 per cent from a week ago and 60 per cent since late October. Before the policy pivot, analysts said the company had been hamstrung for much of the past year. Restrictions on movement in China meant people were holding on to the ashes of loved ones while awaiting a reopening.

Other top performers include low-cost carrier Spring Airlines and national carrier Air China, which stand to benefit from the removal of travel restrictions, as well as three breweries and air purifier manufacturer Midea.

Rory Green, an economist at research group TS Lombard, said the end of zero-Covid was “an increasingly crowded trade” and that “a better bet” might be positioning for the post-Covid economy.

Green added that equity markets were likely to move through three phases, first rallying around immediate policy changes, followed by a weaker period of “risk off” as a Covid exit wave spreads and economic activity disappoints. The final phase is “risk on” returning, as positive sentiment builds again over reopening.

“We are currently in phase 1,” he said, adding that TS Lombard expected the government to “double down” on policy support for Chinese technology hardware in the longer term.

“The sectors have a high beta to growth and will benefit from ongoing efforts to restructure capital allocation to favour party priorities more heavily,” he said.