JP Morgan: Not too worried about rising interest rates affecting China's healthcare industry; remains bullish on biotech and CXO.

JP Morgan released a research report stating that as global interest rates, particularly 10-year and 30-year U.S. Treasury yields, rise, the risk-free rate used in its DCF models and DCF-based equity valuations are facing greater pressure than before. Therefore, it re-examined the potential impact of interest rates on China's healthcare valuations, especially the biotech and CXO sub-sectors. The bank noted that if a higher risk-free rate is used in DCF, the valuations of INSILICO (03696) in the AIDD space, GENSCRIPT (01548) and WuXi AppTec (02359) in the CXO space, and JUNSHI BIO (01877) in the biotech space appear less sensitive than their respective peers. On the other hand, the valuations of KELUN-BIOTECH (06990) in the biotech space, WUXI XDC (02268) in the CXO space, and MICROPORT (00853) in the medical devices space appear more sensitive. The bank noted that there is no consistent correlation pattern between interest rates and China's healthcare stock valuations. For example, the 10-year U.S. Treasury yield and the market-cap-weighted average forward five-year price-to-sales ratio of Chinese biotech stocks have shown a negative correlation since January 2025, but have shown a slight positive correlation since July 2026. Interest rates are more relevant to long-duration biotech assets, while CXO valuations have a weaker direct link to interest rate changes and are more driven by earnings. In addition, the bank expects this rate hike cycle to end after one more hike in December, rather than continuing into a prolonged tightening next year. Therefore, it is not too worried about the impact of rising interest rates on China's healthcare valuations and remains bullish on the biotech and CXO sub-sectors. INNOVENT BIO and KELUN-BIOTECH are its top picks in the biotech space, and INNOVENT BIO's valuation appears less sensitive to interest rates than KELUN-BIOTECH. WUXI BIO (02269) and WuXi AppTec are its top picks in the CXO space, and WuXi AppTec's valuation appears less sensitive to interest rates than WUXI BIO.