China’s healthcare sector has underperformed broader markets through 2026 year-to-date, despite a strong 2025 rally, according to a report. The Hang Seng Healthcare Index has underperformed the Hang Seng Index by 7.4% in 2026-YTD, even after delivering 18.9% excess returns versus the HSI over the combined 2025-26 YTD period.
Healthcare also trailed global markets in 2026-YTD, a sign of fund outflows that the report attributes mainly to stronger performance in tech and artificial intelligence (AI) sectors. The sector posted the largest decline in price-to-earnings multiples amongst all regions analysed from 2025 to 2026-YTD.
The report identifies four specific pressures weighing on the sector beyond competition from tech and AI stocks. First, expectations of Federal Reserve rate hikes have hit biotech valuations, given the historical negative correlation between US interest rates and biotech share prices.
Second, southbound net inflow into the healthcare sector has shrunk and turned to outflow since October 2025, reducing sector liquidity. Third, US-China tensions have widened beyond contract research organisations to the broader biotech sector, with the newly proposed US Biotech Investment National Security Act raising regulatory risk.
Fourth, China’s intensified anti-corruption campaign has stoked market concerns over second-quarter and first-half 2026 revenue growth.
The decline in the Hang Seng Healthcare Index is attributed to various factors, including the decline in price-to-earnings multiples and the outflow of funds from the healthcare sector. They have delivered excess returns versus the HSI over the combined 2025-26 YTD period, but this growth has been overshadowed by the recent decline in the sector’s performance.
The report’s findings highlight the challenges faced by China’s healthcare sector, which has struggled to keep pace with global markets in 2026. As the sector continues to evolve, investors will be closely watching the performance of companies, and their impact on the healthcare services and the economy as a whole.
The healthcare sector’s performance is influenced by a range of factors. The sector will likely face both opportunities and challenges as the global economy continues to evolve.