Morgan Stanley: Risk-return outlook for Chinese biotech stocks improves in the second half of 2026.

Morgan Stanley released a research report stating that the valuation of Chinese biotechnology stocks has fallen back to mid-2025 levels, and the growth, financial resilience, authorization momentum, and registration-type catalysts for the 2026 fiscal year have all improved the risk/return for the second half of 2026. The report points out that the performance of Chinese biotechnology stocks in the 2025 fiscal year is solid, and the 2026 fiscal year guidance still shows strong growth in innovative drug revenue, continuous policy support for differentiated innovation, and strong overseas authorization momentum. The fundamentals are also more resilient, with authorization revenue becoming an increasingly important source of funding, cash runways extending, and profit capabilities expanding. Although the sector is still sensitive to interest rates, downside risks are gradually being buffered by growth, cash runways, and non-dilutive financing, with a more intense global registration-type catalysts expected in the second half of 2026. The bank recommends selectively allocating to two types of targets: companies that are lagging in the first half of 2026 but with catalysts for growth in the second half, such as DUALITYBIO-B (09606) and ABBISKO-B (02256); and companies with a strong global footprint in repeat authorizations, such as AKESO (09926), INNOVENT BIO (01801), and KEYMED BIO-B (02162). These companies have the ability to translate global recognition into sustainable risk-adjusted net worth, rather than just superficial authorization amounts.