Source: Broker China

When non-pharmaceutical funds left the field by drastically reducing their holdings at the bottom of the track in the third quarter, pharmaceutical funds experienced maximum flexibility. Broker China reporters have noticed that pharmaceutical-themed funds centered on Hong Kong stocks and pharmaceuticals have become the sharpest spear in the recent rebound. Many pharmaceutical fund managers emphasized that consistent expectations are not conducive to the pharmaceutical market. Institutional differences, especially the snubbing or bottom reduction of holdings by non-pharmaceutical fund managers, are an important source of the upward elasticity of pharmaceutical funds. Previously, many top fund managers managing non-pharmaceutical funds were revealed to have switched to research and heavy holdings in pharmaceutical stocks. Since then, pharmaceutical stocks have entered a two-year adjustment period.

Pharmaceutical Achievement Fund, pioneer in net worth elasticity

It is extremely counterproductive, and medicine has become a powerful tool for the fund's net worth to fight back.

According to Wind data, pharmaceutical stocks have brought the greatest elasticity to the recovery of Hong Kong stock theme funds. In the past week, domestic A-share funds had the biggest increase of 9.47%, US stock theme funds were about 7%, and the biggest weekly increase of theme funds focusing on emerging markets in the Asia-Pacific region was only 2%, while the biggest increase in net value of Hong Kong stock theme funds in a week was more than 10%.

Broker China reporters noticed that the net worth of the Huitianfu Hong Kong Advantage Select Fund, a subsidiary of Huitianfu Fund, has soared 10.06% over the past week, becoming the sharpest spear in the rebound. The amazing elasticity of the Huitianfu Hong Kong Advantage Choice Fund comes from the fact that the fund has actually become a Hong Kong stock pharmaceutical-themed fund. As of the end of the first three quarters of this year, the fund's position ratio had reached 86%, and Hong Kong stock innovative pharmaceutical stocks contracted the top ten heavyweight stocks of this Hong Kong stock fund.

Meanwhile, the E-Fonda Global Pharmaceuticals Fund managed by Yang Zhenxiao also won second place in offensive resilience last week. The fund's weekly increase was as high as 9.8%. According to the regular report disclosed by the fund, the core heavyweight stocks of this product are mainly Hong Kong stock innovative drugs, as well as Hong Kong stock medical and aesthetic stocks that have been severely defeated by the market.

It is worth noting that the amazing elasticity of pharmaceutical stocks, especially Hong Kong stocks, has already attracted the attention of A-share fund managers.

“Unfortunately, my product positioning is different. If I invest personally, I may be more willing to buy innovative pharmaceutical companies in Hong Kong stocks. Pharmaceutical stocks are probably hesitating and gradually starting a new round of bull market.” A person from a medium-sized fund company in South China said in an interview with a Chinese broker reporter from the brokerage firm that he has managed has greatly increased its holdings in pharmaceutical stocks, judging that pharmaceutical stocks may be the best target for a rebound in the market.

He said that many Hong Kong-stock innovative pharmaceutical companies are in a good position on the circuit, but because of their astonishing R&D investment, such stocks may face large losses over a long period of time, and there is no certainty about the success of new drug development. This makes the decline in such stocks extremely astonishing in the Hong Kong stock market. Misunderstood valuations would far surpass similar A-shares, but as fund managers, they can select stocks at the time point of new drug development and clinical processes. However, once the new drug is successful, its stock price is also the most flexible.

Is it a good thing that non-pharmaceutical funds snubbed pharmaceuticals?

The amazing contribution that pharmaceutical stocks have brought to fund managers in the rebound market is due to the fact that non-pharmaceutical fund managers are still under-allocating pharmaceutical stocks.

“It can be said that when non-pharmaceutical fund managers also begin to hold large holdings in pharmaceutical stocks, then the market is definitely already at a high level. The products currently held in pharmaceutical stocks are mainly industry-themed funds.” A pharmaceutical fund manager in the Shenzhen area told a Chinese brokerage reporter that currently public fund managers in the entire market have a historically low share of pharmaceutical stocks. In particular, there are almost no pharmaceutical stocks in the core positions of many non-pharmaceutical fund managers. This is also one of the core factors why pharmaceutical stocks are currently extremely aggressive.

Zhou Sicong, pharmaceutical manager of Ping An Fund, also believes that the ultra-low holdings of institutions on the pharmaceutical circuit are a key factor. Prior to this round of rebound, with the exception of pharmaceutical funds, the average holdings of pharmaceutical stocks in all market funds were seriously undervalued, setting the lowest margin in recent years. Combined with the extremely low valuation level of the pharmaceutical industry, there was little pressure on the pharmaceutical industry to adjust after a short-term rebound.

She stressed that after one month of growth in the pharmaceutical industry, relative earnings are obvious, and there may be pullback pressure in the short term, but the negative factors in the pharmaceutical industry have been fully released. Even if there are brief adjustments, the biggest factor in suppressing the pharmaceutical industry market is that the sentiment cycle brought about by the policy cycle has begun to improve. The bottom of the pharmaceutical market has been clarified, and future large-scale market conditions can be expected.

“Only when institutions have differences can it be conducive to interpreting the rhythm of the pharmaceutical market.” Zhou Sicong said that although there are differences in the market about how much the performance of pharmaceutical companies' three-quarter reports is actually affected by anti-corruption, expectations are not consistent. Although it is difficult to assert that the problems of individual enterprises and individual products will definitely not occur after the medical anti-corruption campaign, and that the three quarterly reports of enterprises will have a specific impact on revenue and profit during the August and September anti-corruption process, differences are often only conducive to the continuation and far-reaching progress of the market, and expectations that are too consistent are not conducive to the healthy development of the market.

High-ranking top-tier funds intervened in pharmaceutical stocks and became the opposite index

What is obvious is that institutional differences and unanimous expectations indicate whether non-pharmaceutical fund managers will also begin to research and invest heavily in pharmaceutical stocks with pharmaceutical fund managers.

When a top fund manager in South China with a heavy stock of liquor began to pay attention to investment opportunities in pharmaceutical stocks, this kind of consistent expectation became a negative signal. When he was in a high position on the pharmaceutical stock market in March 2022, he conducted many surveys in the pharmaceutical stock field. Since the time of his research, the pharmaceutical stock circuit has been knocked into the cold house by the market for close to two years.

Broker China reporters noticed that when a liquor star fund manager in Beijing began using pharmaceutical stocks as half of the fund products under his management two years ago, this startling inversion also brought an end to the pharmaceutical stock market under consistent expectations. This also had a major impact on the decline in the star fund manager's net worth.

In addition, in early March 2022, a top fund manager in Shanghai who was an electronics researcher suddenly revealed that he was investigating pharmaceutical stocks. It was revealed that he appeared on Propharm's research list, and since he began his research on this stock, pharmaceutical stocks have also begun a long-term decline. From the beginning of the top fund manager's research day to now, Prolo Pharmaceutical's biggest decline during the period has been over 40%.

Clearance opportunity drivers or non-pharmaceutical funds

A large amount of uncertain institutional capital began to reduce their holdings early and left the market in the third quarter, which also brought opportunities for pharmaceutical stock prices to rebound after falling too much.

Wang Zhengjiao, manager of Southern Healthcare Fund, believes that under the rotation of the low-level sector, pessimism in the pharmaceutical industry has been slightly repaired, compounded by a long period of decline and a large decline. Some of the capital from the entire market has returned to the low-level pharmaceutical sector, and pharmaceutical stocks have the risk of defending the market from continuing to decline.

She stressed that considering the length and magnitude of the current round of decline in the pharmaceutical sector, there has been no change in the long-term logic of the pharmaceutical industry, such as the long slope and heavy snow on the demand side, the benefits of aging, etc., but supply-side policy changes are matters that need to be focused on tracking. Judging the possible breakthroughs in the next round of pharmaceutical market, including the direction of least policy resistance, is still innovation, breaking internal circulation, and anti-corruption freeing up the flow of health insurance funds.

Wu Xingwu, manager of Guangfa's Shanghai-Shenzhen-Hong Kong Pharmaceutical Fund, previously summarized the first three quarters, highlighted the risk of pharmaceutical stocks being cleared after institutional capital left the market. He said that the pharmaceutical sector in the first three quarters was still thinking about stock or volume reduction. The trading structure is a relatively important factor to consider capital. Although the fundamentals of the sector have not clearly weakened, capital holdings were reduced ahead of schedule due to market gaming and a high base mentality in the fourth quarter.

It was after a large amount of money left the market that the liquidation of pharmaceutical stocks made the current opportunities on this track particularly remarkable. Ping An Fund Zhou Sicong believes that pharmaceuticals already have a long-term logic, which is conducive to supporting the large-scale market cycle of the pharmaceutical industry. The pharmaceutical industry's policy cycle and product cycle are in an upward phase.

At the end of 2021, with the early introduction of DRGDIP (DRG indicates payment by group related to disease diagnosis, DIP refers to payment by disease type value), the “Wang Bang” brand for the pharmaceutical industry has basically ended at the national level, and the pharmaceutical industry policy cycle has bottomed out. Follow-up contract renewal rules for the 2022 innovative drug negotiations have clearly begun, and pharmaceutical policy has begun to pick up; the July 2023 “Negotiated Drug Renewal Rules” continued the policy trend of 22 years, further reduced the extent of future price declines in innovative drug negotiations, raised the maximum payment amount for health insurance, and made the policy trend clear. At the just-concluded European Oncology Conference, the latest R&D results of many domestic and foreign innovative pharmaceutical companies will be revealed, and the pharmaceutical industry's product cycle will be further clarified.

“At the same time, there are short-term catalysts and hot investment themes, which are conducive to boosting the attention of the pharmaceutical industry.” Zhou Sicong said that health insurance negotiations will begin in November. Under the guidance of the new rules, the price reduction is expected to continue a more rational and moderate trend, which is conducive to restoring market confidence in investment in the pharmaceutical industry. At the same time, the current super theme of diet pills is also conducive to capital attention to the pharmaceutical industry, and the popularity of investment in the pharmaceutical industry is increasing.

Editor/Corrine