Safety fears trigger decline among vaccine firms, outweighing broad gains

Shares in Chinese healthcare companies tumbled on Monday in response to vaccine safety concerns, capping broader gains as the market rose on Monday.

By market close, the CSI300 Health Care Index, which tracks major mainland healthcare companies, slumped 4.1 percent. Ten vaccine companies' shares dropped by the daily limit of 10 percent.

The blue-chip CSI300 index rose 0.9 percent to 3525.75 points, while the Shanghai Composite Index closed up 1.1 percent at 2859.54 points, aided by strength in financials and industrial stocks.

The healthcare sector started its slide as soon as the stock market opened in the morning, with a group of leading vaccine companies falling by the daily limit, including Changchun High and New Technology Industry Inc, Chongqing Zhifei Biological Products Co Ltd and Walvax Biotechnology Co Ltd.

By noon, the entire sector had lost 160 billion yuan ($23.6 billion) in stock value. Aside from vaccine companies, those associated with genetic technology, immunotherapy, generic drugs, cancer treatment, influenza treatment and private hospitals all saw declines.

Many listed healthcare companies rushed to announce they do not operate vaccine-related businesses, to distance themselves from the scandal.

Shenzhen-listed Changsheng Bio-Technology Co Ltd, a prominent Chinese vaccine maker, saw its shares drop by the daily limit after it resumed trading following a morning suspension. The company's stock dropped by the daily limit on five successive trading days last week.

Its major affiliate Changchun Changsheng Bio-tech Co was found on July 15 to have fabricated production and inspection data on a freeze-dried rabies vaccine for human use by Chinese health authorities. The company was later revealed to have manufactured and sold inferior-quality diphtheria-pertussis-tetanus, or DPT, a vaccine for infants, a few months ago.

Changsheng Bio-Tech said in a statement released at noon that China's securities regulator is investigating it over disclosure violations. It is to face a warning, suspension and even delisting if the investigation discovers law-breaking violations.

The Chinese health authorities have revoked the company's Drug GMP Certificate, and confirmed the company's other vaccines available in the market have been tested and do not have quality problems. Nevertheless, concerns over vaccine safety still prompted a strong market response.

Dong Dengxin, a finance professor at the Wuhan University of Science and Technology, said the stock market's downturn in the vaccine and healthcare sector demonstrated investors' sentiment.

"Business integrity and credibility are bottom-line requirements for a listed company, and violation against such rules will certainly lead to reduced investor confidence," Dong said.

"Vaccine safety is associated with people's health and life, and is a serious issue. It is understandable that investors sell off related shares in response to the scandal."

Yet, it is a pity that many innocent companies have been impacted, Dong said, adding he believes such short-term drops are normal, and the stock market will recover soon.