By Jason Chau

Chinese biopharma stocks rallied on Monday, as investors moved away from artificial-intelligence stocks amid concerns over overstretched valuations.

Shares of BeOne Medicines led gains among biopharma majors in Shanghai, closing more than 10% higher, while Hengrui Pharmaceuticals led the surge in Hong Kong, with its shares closing 9.8% higher.

Other major drugmakers including WuXi AppTec, Innovent Biologics and CSPC Pharmaceutical climbed 5.2%, 6.3% and 6.9%, respectively, in Hong Kong. Internet healthcare providers also benefited, with JD Health gaining 6.1% and Alibaba Health rising 3.6%.

Smaller pharmaceutical companies posted even sharper gains, with Junshi Biosciences and Biocytogen Pharmaceuticals surging 15% and 20%, respectively.

Analysts said the rally was triggered by a broad shift in investor positioning, with a surge of fund outflows from AI-related names reallocating into healthcare stocks.

The benchmark Hang Seng Biotech Index jumped 6.7% while the Hang Seng Healthcare Index rose 6.5%, posting one of their biggest single-day gains in the past two years.

In comparison, the Hang Seng Tech Index, which includes the biggest Chinese AI names, rose 3.2% Monday.

"The recent rally and potential rally in the short term is all AI fund flow related, [and is] not related to fundamentals," Jefferies head of Asia healthcare Cui Cui said.

The gains were amplified by Alebund Pharmaceuticals' strong trading debut in Hong Kong on Monday after its initial public offering, which was 900 times oversubscribed.

"The oversubscription likely reminded investors that the Chinese government remains dedicated to investing in the domestic pharmaceutical sector," Morningstar analyst Kai Wang said.

Innovative drugmakers received an additional boost, after authorities published the list of drugs that passed the preliminary review for China's national medical insurance drug catalog, said Nomura head of China healthcare research Jialin Zhang. The move allows commercial insurers to include more new drugs in their coverage.

Investors have grown increasingly bullish on Chinese pharma companies, whose innovation and technological expertise have advanced significantly in recent years, backed by strong policy support from Beijing.

Write to Jason Chau at jason.chau@wsj.com