SHANGHAI (Reuters) – Investors have rushed to exit bets on China’s health sector this week, acting on a hunch that the regulatory scrutiny that sparked panic selling in the tech and education sectors might next hit the medical industry.

Medical expenses are one of three key areas of living costs seen as Beijing’s targets for social change, heightening expectations that authorities will make healthcare their next focus of market reform.

“Real estate, education, and healthcare are the three big mountains and the government inevitably has to tackle the issues,” said Ming Liao, founding partner of Beijing-based private equity firm Prospect Avenue Capital.

Selling has been fierce and although the Hang Seng healthcare index bounced on Wednesday, it is down about 11% for the week compared with a similar drop in the hard-hit Hang Seng Tech index and a 7.2% week-so-far plunge in the broader Hang Seng index.

Among mainland stocks, the CSI300 Healthcare index was in freefall from Thursday until it steadied on Wednesday, shedding roughly 13% in the process, trailing a 20% fall suffered by education stocks but outstripping the broader market.

“I think obviously (small investors) have panicked,” said Andy Maynard, head of equities at China Renaissance in Hong Kong, who feels the rout may have been a bit overdone.

Among the worst hit stocks are those with a tech overlap: JD Health International, Alibaba Health Information Technology and Genscript Biotech Corp., racked up losses between 27% and 36% over the past five days.

China’s health sector is vast, comprising defensive service providers, pharmaceuticals and fast-growing tech and biotech firms, though it had been seen as exposed to big demographic trends and supported by rising public and private spending.

Reforms over the past decade have sought to expand social health insurance, public procurement of medicine and hospital building. Last month, China’s State Council, or cabinet, promised further progress on medicine prices.

Huang Yan, vice president of Shanghai See Truth Investment Management, said the government would likely take a targeted approach to tackling different parts of the sector in its drive for social reform.

“Sectors like cosmetic medicine consume wealth but create little social value,” he said. “But the government will continue to support innovative drugmaking, while reducing drug prices through bulk-buying.”

Still, while costs remain high and quality of care has been an issue outside big cities, analysts are nervous about where the authorities’ next move lands.

“The jittery…search for the next shoe to drop may keep investors away from engaging for now,” said Tommy Xie, OCBC Bank’s head of greater China research.

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