Top China Fund Manager Sees Bargain in Health-Care Selloff

(Bloomberg) -- As investors sell Chinese health-care stocks in the wake of a vaccine scandal, one top-performing fund manager sees a chance to buy more.

The broad selloff in the sector will likely be temporary as investors overreacted and “wrongly implicated” many stocks, said Wang Chaowei, who manages 866 million yuan ($127 million) for CPIC Fund Management Co. One of his funds beat 92 percent of peers in the past year.

Chinese health-care stocks tumbled after vaccine violations by a biotech firm triggered a public outcry. The crackdown on the scandal intensified as President Xi Jinping ordered authorities to severely punish those responsible.

“The selloff provides a very good opportunity as valuations of many health-care firms were expensive -- there’s no need to be overly pessimistic,” said Wang. “I’m definitely buying more.”

A gauge of health-care stocks posted its biggest intraday decline in more than two years on Monday. Changsheng Bio-Technology Co., which was found to have faked data and sold low-quality vaccines for infants, fell by the 10 percent daily limit for the seventh day on Tuesday, and then trading was halted on Wednesday. Health care has been the only sector to rise in the CSI 300 Index this year, as investors sought a haven amid an escalating trade spat with the U.S. The sector’s valuation has soared to triple that of the broader index.

Health-care stocks were the best performers on the CSI 300 Index Wednesday, as the sector gauge closed up 1.4 percent. Vaccine makers that were sold off in reaction to the scandal had a second day of gains, with Hualan Biological Engineering Inc. jumping by the 10 percent daily limit and Walvax Biotechnology Co. adding 1.2 percent.

Wang is betting that demand for health-care services in China will be strong as the population is aging. The country’s medical expenditure could rise more than 30 percent in 10 years and by 60 percent in 20 years, according to Bloomberg Intelligence analyst Nikkie Lu.

Health care is one sector where future growth is guaranteed, said Wang. Companies with market-leading status and a competitive edge in areas including cancer, eye care, diabetes and cardiovascular drugs will be on his watch list, he said, declining to name specific stocks. Pharmaceutical companies accounted for eight of the top 10 holdings in one of Wang’s funds as of the second quarter, according to the asset manager’s website.

“You can quit drinking, cut back on expenditure for entertainment and food,” said Wang. “But you have to get medical care once you’re sick.”

©2018 Bloomberg L.P.