(Bloomberg) -- Shares of Covid test kit and drug makers are in the spotlight in Asia, posting strong gains in recent days following a surge of cases.
Among the top performers is Chinese Covid test maker Daan Gene Co., which has jumped 17% this week. In Japan, drug-maker Daiichi Sankyo Co. rose as much as 5.6%, the most in about a week, while South Korea’s Shin Poong Pharmaceutical Co. pared gains after a five-session 71% rally.
These companies have re-emerged as investor darlings amid a spike in Covid cases in the three eastern Asian countries since last month, as high temperatures and the Summer Olympics in Paris led to more indoor gatherings.
Positivity rates for the coronavirus have ticked up since the end of June, though the illnesses caused by the resurgence remain mostly mild, according to data from the Chinese Center for Disease Control and Prevention. The virus circulating in the country is still subvariants of omicron, including JN.1 and XDV.
South Korea’s disease control and prevention agency said it will secure additional drugs as cases have been rising quickly, causing shortages in supply in some areas as hospitalizations increase. It will also roll out vaccines for high-risk groups in October.
Still, some analysts say the sector is unlikely to see an extended boom like the one witnessed in 2020, given the slim chances for such regional outbreaks to evolve into another global pandemic.
“Covid prevalence has been recurrent for a few times in the past two years and each time the related stocks would experience short-lived outperformance but then it cooled down,” said Minyue Liu, an investment specialist for Asian and Greater China equities at BNP Paribas Asset Management. “Many of these companies are small-to-mid sized companies with low trading liquidity.”
Covid-related products account for less than 10% of all health-care sales in China, Liu said, adding that the latest rise in demand is unlikely to have a huge boost for earnings.
Chinese drug makers that produce Covid treatments, including China Resources Sanjiu Medical & Pharmaceutical Co. and Shijiazhuang Yiling Pharmaceutical Co., might benefit in the short term, Tony Ren and Candyce Gao of Macquarie Securities said.
“A sharp rebound of Covid or flu infections would provide upside,” they said.
--With assistance from Dong Lyu.
(Adds detail in fifth paragraph, Macquarie analyst comment in last two paragraphs.)
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