The overall market fell sharply in August. The CSI 300 index fell 5.21% throughout the month, the Citic Pharmaceutical Index fell 8.08%, and the pharmaceutical sector outperformed the CSI 300 index by 2.87 percentage points. Since the beginning of 2018, the rise and fall of each sub-industry has gradually diverged, and the increase of the pharmaceutical sector is at the upstream level of each sub-industry.
In August, the A-share market as a whole had ups and downs, while the overall performance of the pharmaceutical sector was lacklustre, listed in the middle and lower reaches of various sub-industries. Within the plate, the performance of many varieties in the past month is also worthy of attention-on the one hand, the leading companies with large market capitalization have experienced a "roller coaster" market, with high-quality companies with heavy institutional positions falling collectively in the middle of the week and then gradually strengthening; on the other hand, some second-tier subdivision leaders with good performance and low valuations have performed well.
Societe Generale Securities believes that investors are expected to usher in the golden autumn season after the China report season-which is also the traditional "harvest season" for the pharmaceutical sector every year. As a sustainable growth industry with stable performance, with the release of China News and three Quarterly reports, the pharmaceutical sector often has a wave of valuation switching market.
Looking forward to this year, the change of policy, the performance of the company, and the differentiation between varieties, which is the key point of the valuation switch of "2018 take 2019 season"? Which varieties are suitable to be used as the main configuration targets for valuation switching? Societe Generale Securities believes that policy changes are conducive to renewed attention to the logic of valuation switching. In the face of personnel changes in the Drug Administration, the general direction of the policy will not be reversed. In the future, more attention should be paid to the matching of current profits and valuation, and innovation should be given a certain premium. Volume procurement is promoted in batches, and investors need to pay attention to the results of volume procurement and its impact on the performance of listed companies in the next stage.
Societe Generale Securities believes that the overall performance-to-price ratio of the pharmaceutical sector is already very high. The larger correction in the past two months has made the pharmaceutical sector quite cost-effective. In terms of valuation, the pharmaceutical sector is at a low level in recent years, and the internal valuation differentiation is relatively serious; in terms of performance, both the first quarterly report and the China News have a good performance; from the bottom up, the premium of the leader is still obvious. The valuation of some first-tier companies is at a historically reasonable level, with the ability to switch valuations in the fourth quarter.
From the perspective of public offering fund positions, the proportion of pharmaceutical sector positions has continued to rise since Q1. Judging from the pharmaceutical positions of all institutions' active funds (calculated according to the proportion of heavy holdings), the proportion of Q2 positions in the A-share pharmaceutical sector in 2018 was 15.40%, which rebounded rapidly, rising 4.39pp from 2017 to 11.40% after deducting pharmaceutical funds, with an increase of 3.7pp from the previous year. Although the total position of the pharmaceutical sector is in a state of overmatch, but after deducting the medical fund, the position is close to the total market value of pharmaceutical stocks.
