China biotech, drug firms warn of risks as stocks surge on virus-linked buying

SHANGHAI: Chinese biotech firms and drug makers warned of investment risk after their shares surged on feverish buying as a result of the Wuhan coronavirus, which has now infected more than 300 people.

The outbreak has dampened sentiment on the broader market although it has driven some health-related companies to dizzying heights and economists have said it could eventually put more downward pressure on China's economic growth.

Jiangsu Bioperfectus Technologies urged investors on Wednesday to be rational and prudent after its shares surged more than 40% this week. The maker of in-vitro diagnostic products said in an exchange filing that its shares currently trade at roughly 100 times earnings, much higher than the sector average of 34.26.

Beijing Hotgen Biotech, another in-vitro diagnostic instrument maker, said the epidemic will not have an impact on its revenues or profit this year, and also flagged investment risks.

Investors have piled into biotech firms, drugmakers, and facial mask producers this week, while dumping airlines, film producers and hotel operators, as the new coronavirus spreads.

The outbreak, which began in the central Chinese city of Wuhan, has spread to Beijing, Shanghai and overseas. The death toll in China rose to six on Tuesday, and authorities have confirmed more than 300 cases throughout the country.

"We are concerned that the situation could worsen in coming months, as the Chinese Lunar New Year holiday is approaching," Nomura economists led by Ting Lu said in a research report late on Tuesday.

Since there's no effective vaccine yet to cure the new virus, "perhaps we just need to recognise the not-so-small risks to the economies and financial markets."

Jefferies said in a report: "It's still very early in the outbreak but based on the number of cases and ability to spread between humans, it bears some similarity to SARS in 2003."

According to one estimate, the outbreak of the Severe Acute Respiratory Syndrome (SARS) in 2003 which also started in China, cut the country's economic growth by 1-2 percentage points.

On Tuesday, China shares fell to two-week lows and the yuan had its worst day in five-months on mounting worries about the new virus.

Dozens of China-listed companies have publicly said this week that their products - ranging from diagnostic devices to flu drugs and facial masks - can be used to prevent or detect the new virus, leading to feverish buying in their stocks.

Drugmakers Northeast Pharmaceutical Group and Jiangsu Wuzhong Industrial Co cautioned against investment risks on Wednesday.

Signs of inflated prices in some stocks have triggered pump-and-dump fears that could rebound on retail investors.

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