Cao Wenjing, reporter of China Fund News
Pharmaceutical stocks, which have been silent for a long time, have once again become the brightest in the market.
As of today's closing, the biomedical sector had risen 4.25%, ranking 1st in Shenwan's Tier 1 industry. Among them, the CRO index of the segmented industry surged 8.60%, the medical services index surged 6.40%, and individual stocks showed a surge of ups and downs. In addition, more than 30 medicinesETFIt surged more than 4%. Among them, nearly 10 pharmaceutical ETFs rose more than 5%. The Zhongguancun ETF, which heavily holdings pharmaceutical stocks such as Aimeike, Wantai Biotech, Lepu Healthcare, and Tong Ren Tang, rarely rose or stopped.
A number of fund managers said that today's sharp rise in the pharmaceutical sector is partly a repair to the rapid decline in the previous period. On the one hand, it was catalyzed by favorable news such as COVID-19 specific drugs, and on the other hand, the short-term decline in Whitehorse stocks was too large. Previously, the risk of concentrated holdings and overvaluations was released to a certain extent. Therefore, some of the Whitehorse stocks, whose fundamentals are still improving in the future, are also beginning to gradually gain favor and allocation from investors.
A wave of “returning blood” in the pharmaceutical sector came to an end, and more than 30 pharmaceutical-related ETFs surged more than 4%
As of today's closing, the biomedical sector has risen 4.25%, ranking first in Shenwan's first-tier industry ranking. Since this year, there has been a wave of adjustments in the sector. The biomedical index fell 9.17% during the year, and the industry ranked 21st in terms of rise and fall.
Judging from the segmentation concept, today the CRO index surged 8.60% and the medical services index surged 6.40%, surpassing the “Ning Group” index. Meanwhile, the eye care index surged 4.35%, and the medical aesthetic index surged 4.24%, surpassing the liquor index.
Individual stocks have risen and stopped, with Medici, Xinhua Healthcare, Tongze Healthcare, Jinghua Pharmaceutical, Zhaoyan New Pharmaceuticals, Gloria Ying, Tiantan Biotech, Jianmin Group, Guang Yuyuan, and Zhongguancun all rising and stopping.
Driven by the surge in the pharmaceutical sector, among A-share ETFs, pharmaceutical ETFs registered the highest gains. More than 30 pharmaceutical ETFs surged more than 4%. Among them, the Ping An China Securities Pharmaceutical and Medical Device Innovation ETF and the Yi Fangda China Securities Medical ETF surged 6.52% and 6.05% respectively, while nearly 10 pharmaceutical ETFs, including Huabao China Securities Medical ETF, Tianhong Guozheng Biomedical ETF, and Huitianfu Guozheng Biomedical ETF, rose more than 5%. It is worth noting that the Zhongguancun ETF rarely rises and stops, with a premium rate of nearly 19%. Among the top 20 heavy-held stocks, pharmaceutical stocks such as Aimeike, Wantai Biotech, Lepu Healthcare, and Tong Ren Tang have surged to varying degrees today.
Meanwhile, valuations of related pharmaceutical-themed funds have risen sharply.
At present, the valuation of the pharmaceutical industry has fallen to a relatively reasonable position
The pharmaceutical sector has experienced significant adjustments in the last two months. Since June 30, 2021, the pharmaceutical index has fallen 20%. Together with the food and beverage industry, which is also the consumer sector, it has become one of the sectors with the biggest decline. (Data source: Wind, 2021.6.30-2021.9.3), so what is the reason behind today's sharp rise from the bottom of the pharmaceutical sector? Has the pharmaceutical sector adjustment come to an end? What is your view on the future market of the pharmaceutical sector in the second half of the year or longer? What are possible risk points and uncertainties to be aware of? Fund Jun has interviewed a number of fund managers to provide explanations for investors. The interviewees were Yang Ting, the proposed fund manager of Dacheng Healthcare; Chen Xu, Societe Generale Healthcare Fund manager of Societe Generale Fund; Luo Ying, manager of HSBC Jinxin Healthcare Pioneer Fund; and Wang Man, manager of China Post Healthcare Fund.
China Fund News Reporter: What is the reason behind today's sharp rise from the bottom of the pharmaceutical sector?
Luo Ying: The core of the recent sector correction is investor sentiment and the increasingly concentrated position structure over the past few years. In the past few years, pharmaceutical investors have been used to track-style investment strategies, concentrating their holdings on booming tracks. If they determine that a track has policy risks, they will completely reduce the target of that track. Similar examples include the adjuvant drug industry in 2016-2017, the generic drug industry in 2018-2019, and the high-value consumables industry in 2020. Judging from the historical experience of the past few years, this set of strategies is relatively “efficient,” but as positions are concentrated more on CXOs, medical services, and leading medical device companies, which push up valuations in these fields, the cost performance ratio of this investment strategy is also declining, and the volatility is increasing. Therefore, recently, we have also seen a sharp decline of 30-50% in some pharmaceutical Whitehorse stocks in just two months.
In addition, some recent industry policies have also affected investor sentiment. Some of these policies may have a certain impact on the price of products that segment the racetrack. However, judging from our observations, the various policies recently introduced have had little impact on the profitability and fundamentals of enterprises in the industry.
Today's sharp rise in the pharmaceutical sector is partly a repair to the rapid decline in the previous period. On the one hand, it was catalyzed by favorable news such as COVID-19 specific drugs, and on the other hand, the short-term decline in Whitehorse stocks was too large. Previously, the risk of concentrated holdings and overvaluations was released to a certain extent. Therefore, some of the Whitehorse stocks, whose fundamentals are still improving in the future, are also beginning to gradually gain favor and allocation from investors.
Yang Ting: It is difficult to make a conclusion about the single-day rebound in the market, but in the long run, the current valuation of the pharmaceutical industry has returned below the average. Especially after the recent rapid pullback, pharmaceutical valuations have already returned below the five-year average. I personally think it's a good buying point now: valuations have fallen to a relatively reasonable position, but it's just uncertain when the shock will slow down. This is often affected by the popularity of other market sectors.
Wang Man: Today's surge is mainly a correction to the sharp decline in the previous period. Since July, medicine has been at the core of mostassetsUnder the premise that the interim results met or even exceeded expectations, the overall index fell by nearly 20%, core individual stocks fell by 30%, and some even fell short. In addition to expensive valuations, it is more about changes in the transaction structure. Capital choices have made profits from sectors such as photovoltaics and new energy, which have chased hot spots in the market, causing an irrational decline in the short term.
Chen Xu: I personally think that the sharp rise in the short-term pharmaceutical sector is mainly due to the seesaw effect of capital and the irrational rapid decline in the pharmaceutical sector since August. The market is constantly comparing and looking for investments in cost-effective fields.
Short-term adjustment risks still exist, and long-term allocation values are becoming more and more prominent.
Optimistic about the consumption of emerging pharmaceuticals, high-end pharmaceutical equipment, etc.
China Fund News Reporter: Has the pharmaceutical sector adjustment come to an end? What is your view on the future market of the pharmaceutical sector in the second half of the year or longer? What are possible risk points and uncertainties to be aware of?
Luo Ying: Looking at the short term, we think the industry trend is still not completely clear, and there is still a certain risk of adjustment in the short term in the entire pharmaceutical sector. However, if we look at the long term, we will find that the development path of the industry is clear, and the long-term allocation value is becoming more and more prominent.
Pharmaceuticals Over the past ten years, we have experienced the take-off of the Chinese economy, as well as drug reviews, health insurance, and capital market changes. This rapid change has completely changed the industry's ecology and growth logic. Based on this, we judge that in various pharmaceutical segments, a group of multinational giants headquartered in China may appear in the next 5-10 years.
In 2015, the number of biotech companies in China was still very small, but in 2019 it reached 865, accounting for 14% of the world. In terms of R&D expenses, the R&D expenses of Chinese pharmaceutical companies accounted for only 7% of global pharmaceutical companies' R&D expenses in 2015, and jumped to 12% in 2019. This figure is expected to become 21% in 2024, making China a major pharmaceutical research and development country second only to the US.
The development of China's local pharmaceutical industry is only 30 years, and drug review reform is only 5 years away. In 5 years, the Chinese pharmaceutical market has grown into the second largest market in the world and the second largest research and development base for innovative drugs in the world. Currently, the total market for innovative drugs, devices, and vaccines in China does not exceed the 50 billion dollar market. If we follow a similar growth path in overseas markets, the Chinese pharmaceutical industry will have tens or even 100 times more room in the future. I believe that excellent pharmaceutical companies, equipment, and vaccine companies that meet China's clinical needs will surely be born in this soil.
Chen Xu: Looking back at the development process of the pharmaceutical sector in the past ten years, there were only three similar large-scale adjustments. The first two were superimposed on the systemic pullback of the general market. The most recent one began in May 2018, with a pullback range of about 40%, mainly due to the emotional concerns brought about by systematic market adjustments and initial volume purchases. Back to the present, recent adjustments in the pharmaceutical industry are mainly due to sentiment adjustments under policy pressure. From IVD and device collection in Anhui, medical device GPO model in Shenzhen, to the latest influenza vaccine collection in Shandong, current market sentiment shows great concern over the blurring boundaries of pharmaceutical collection. In our judgment, market sentiment exaggerated the original intention of the policy.
The current round of the pharmaceutical index has already recovered about 20% from its high point. We think the impact will definitely be far less than the situation in 2018. Currently, the valuations of some varieties have returned to their positions at the beginning of 2020. Looking ahead to the second half of the year, the performance of the pharmaceutical sector is expected to continue to be impressive, and the long-term logic of the aging of society remains clear. After policy sentiment stabilizes, it may welcome better layout opportunities.
Wang Man: Since pharmaceutical adjustments are due to non-fundamental but financial turbulence, it's hard to say whether to stop, but from a fundamental point of view, many assets have already fallen into a very attractive range for mid-term allocations. As a fund manager who manages pharmaceutical funds, I think the core targets are worth itKakuraThe stock price range.
Looking forward to the future, the three-quarter report may act as a catalyst for the market in the pharmaceutical sector. However, the fourth quarter is generally a low season for pharmaceuticals. The performance vacuum period is compounded by the fact that the Health Insurance Administration can easily introduce some price reduction policies at the end of the year, so there may be some uncertainty. But what is more noteworthy is that the valuation market changes at the end of each year. In the pharmaceutical sector segment, CXO will maintain a high growth rate next year, and the healthcare service sector will maintain steady growth. There has been no change in these fundamentals or the logic of previous years. Under the downward pressure of the economy, industries that maintain high growth will become even more scarce in the future. As an industry less affected by the economic cycle, the pharmaceutical sector is compounded by financemonetary policyExpectations are loose, and valuations are expected to rise further. Currently, pharmaceuticals have entered a range with configuration value. It is recommended to ignore short-term fluctuations and actively allocate for next year's market.
Yang Ting: The pharmaceutical industry is rich in investment opportunities. There are three specific points: First, as consumption upgrades continue, some emerging pharmaceutical consumption fields will emerge, such as medical services and medical aesthetics. Second, the underlying capacity of China's pharmaceutical industry is based on the three basic industries of fine chemicals, electronics manufacturing, and mechanical processing. China has huge potential in the pharmaceutical industry, and there are two opportunities here. (1) Import substitution. This is the hottest topic in pharmaceutical investment, especially in the medical device sector, in the past ten years. (2) In the future, China's own multinational companies will also appear in the Chinese pharmaceutical industry. CDMO is the clearest example: it is a reflection of the power of fine chemicals in the pharmaceutical market. Furthermore, the pharmaceutical industry's supply chain was previously monopolized by foreign countries, but now China's listed companies are breaking this situation. There are bound to be opportunities in supporting industries such as high-end pharmaceutical equipment, scientific research reagents and services, and high-end biomedical materials. Third, companies that adapt to policies and industry trends, maintain innovation, and gain opportunities for rapid growth.
The uncertainties in the market are: first of all, when COVID-19 first began, we thought it would be easier to solve, but now it may exist for a long time; this cannot be ignored. As a result, social activities at home and abroad are in an abnormal situation. In a situation where there is so much liquidity, we need to determine which increases are on the cusp, what increases have long-term upward logic; which are due to dividends, and which are due to capacity. The risk point is that in some segments of the pharmaceutical industry, there are signs of going from blue to red due to the high substitution rate of domestic products, and market competition is intensifying, which is worth paying attention to. Health insurance fee control does have some impact on the pharmaceutical industry, but in the long run, for example, the statement on industry trends mentioned above restricts certain enterprises while also encouraging others to comply with the health insurance fee control policy.