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Sell the Rumor Fails in China Biotech as It Roars Back

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(Bloomberg) — Some of China’s biggest drugmakers saw at least $22 billion of market value vanish after a day of wild speculation over possible inclusion in President Joe Biden’s blacklist.

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On Wednesday, as reports circulated about a new cohort of Chinese firms set to be hit with U.S. sanctions, traders feared that biotech firms could be next. Within hours, Wuxi Biologics Cayman Inc.’s stock slumped by a record 25% in Hong Kong, erasing more than $10 billion of market value. Its sister company, WuXi AppTec Co., lost $7 billion.

As it turns out, the speculation was just that. Investors spent the last two days buying back the stock and others hit by worry. The quick tumble and swift recovery shows just how uneasy investors remain in the world’s worst-performing major stock market, with traders ready to dump at first sign of trouble.

“It was an overreaction,” said Mia He, an analyst at Bloomberg Intelligence. “After sanctions on chips, investors thought it would spread to the medical field. But it didn’t and their fundamentals remain unchanged.”

Read: U.S. Steps Up China Pressure Over Surveillance of Uyghurs

On Friday, pharmaceutical firms rebounded after Washington’s list of sanctioned firms excluded major biotech names, with Wuxi Biologics among top gainers on the benchmark Hang Seng Index. WuXi AppTec jumped as much as 11% in Hong Kong before trimming gains to about 2% in afternoon trading. Other biotech names traded in China and Hong Kong, including Pharmaron Beijing Co. Ltd. and Genscript Biotech Corp. saw sharp price spikes.

Beijing’s sweeping crackdown on companies in sectors ranging from tech to education has made investors question whether the Chinese equities are “investable.” Hong Kong’s Hang Seng Tech Index continues to touch new lows while a gauge of Chinese shares in Hong Kong is trading at the lowest in over five years.

(Corrects spelling of WuXi AppTec’s name and a reference to it as Wuxi Biologics’ parent in story published on Dec. 17)

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