Domestic drug makers surged on mainland stock exchanges yesterday as investors rushed into the sector on speculation a new strain of bird flu could spread further and create a spike in demand for related medicines.
Analysts said capital would continue flowing into drug makers and that valuations, already about 25 times price to forward earnings (forward PE) on average, could go even higher as public panic mounts over the as yet unnamed disease.
The H7N9 strain of avian flu is a statutorily notifiable infectious disease in Hong Kong. There is so far no vaccine for it.
Shenzhen Neptunus Bioengineering, Shandong Lukang Pharmaceutical, Guilin Layn Natural Ingredients and Beijing Tiantan Biological Products - four pharmaceutical firms that make vaccine or antibiotic products - rose by the daily limit of 10 per cent in Shanghai and Shenzhen. Antibiotics are medicines that treat infections, while vaccines are used to provide immunity to specific infections.
"If no cure is found for the bird flu or [if there are] more new cases, more speculative investors will join in. Investors fear this could become another Sars," Shanghai-based UOB Kay Hian analyst Wang Aochao said.
The benchmark Shanghai Composite Index lost 0.1 per cent to finish at 2,234.39 points, trading at about 12 times forward PE.
The Hong Kong exchange was closed for the Easter holiday yesterday. In Hong Kong, major pharmaceutical firms trade at a ratio of about 20-30 times forward PE. Sihuan Pharmaceutical Holdings gained 0.52 per cent to close at HK$3.84 on Thursday.
Two mainlanders have died and a third is critically ill after they became the first reported human cases of infection by the lesser-known strain of bird flu.
The National Health and Family Planning Commission said on Sunday it was not clear how the three became infected but there was no evidence of human-to-human transmission.
The commission said two men - aged 87 and 27 - died in Shanghai after becoming infected with the H7N9 strain of the avian influenza virus.
Experts say the virus does not seem to be highly contagious but appears more deadly than other strains of the H7 virus that have previously infected humans.