Source: Yaya Hong Kong Stock Exchange
The market situation is brewing amid differences. Since November, both A shares and Hong Kong stocks have bottomed out and rebounded. A shares are approaching 3,100 points, and Hong Kong stocks have returned to 18,000 points. Although judging from the index, the increase was not significant, and the rebound was stumbling.
As we mentioned at the beginning of this month, this month is the best month at the macro level. The economy is stabilizing, the policies it should have, Huijin also lends support, and interest rates on US bonds are shifting. These factors make November a powerful time to fight back, and the sharp decline in Hong Kong stocks will be more flexible than A-shares.
However, the protagonist leading the rebound of A/H shares in this round is innovative pharmaceuticals+consumer electronics. Judging from the past half month, consumer electronics has performed better in A-shares, while innovative drugs have performed more fiercely in Hong Kong stocks.
Looking back at November of last year, the main actors that dominated the epic rebound in Hong Kong stocks were weighted science and technology and network stocks plus consumer stocks, but at this stage, the rebound in these two industries is clearly inferior to last year, and everyone has a bad experience.
For example, when Hong Kong stocks rebounded in November last year, Tencent rose more than 40% in a single month, but now that Hong Kong stocks have entered a rebound stage, Tencent has only risen more than 13%. On the other hand, looking at the innovative drug circuit of Hong Kong stocks, several core targets rose by more than 30% in a single month. The shareholding experience was far better than that of technology stocks with ups and downs. If the market is always right, then there is no doubt that the current Hong Kong stock capital is focusing on the innovative drug race track.
The reason is that the essence driving this round of market activity is valuation. The core depends on the risk appetite of the vast majority of investors, and innovative drugs that are not bound by short-term profit constraints are the most sensitive varieties to this.
On the other hand, considering profit factors and valuation issues, technology stocks are still not cheap enough, flexibility is limited, and capital also favors innovative drugs with more room for flexibility, so the performance of innovative drugs is ahead of schedule.
Looking back, the current market for innovative drugs is likely just the beginning. Whether it's short-term liquidity or macro events, or mid-term industry trends, there is still plenty of room.
First, since the end of October, although the Federal Reserve has said that there is still a possibility of raising interest rates, it has intended to release bad news that exceeds market expectations to suppress the rise in long-term US bond yields. For example, the number of non-farm payrolls fell short of expectations, with 150,000 new jobs added, the lowest point in the past two years. The October CPI data disclosed last week fell short of market expectations, causing the market to be dumbfounded and establishing a trend where long-term US debt peaked and turned.
Looking at it now, the Fed's management of expectations has paid off, and interest rates that most inhibit innovative drugs in the short term have been clearly eased.
Major Wall Street banks are also beginning to bet that interest rates will not be raised again. Some will begin trading to cut interest rates by 50 bps in June-July next year, and by at least 100 bps throughout 2024. Long-term US Treasury yields also hit a new low in the past three months, falling back to within 4.4.
As the US CPI for October weakened beyond expectations, last week's macro events sent a positive signal, and the RMB exchange rate strengthened accordingly. Over the past week, the exchange rate has recovered from the 7.3 mark to 7.13, which has led to an increase in A/H shares, and the pressure on Hong Kong stocks on the exchange rate has also lessened.
However, for the vast majority of investors, although the opportunities for innovative drugs are good, extreme examples will inevitably occur in the industry. How retail investors participate is an even more important point.
For example, Corning Jerry, which we mentioned last week, although this innovative drug has risen by nearly 70% in the past 3 months, due to the failure of the company's disinformation data, management leaked the news of the failure to big capital ahead of time, and the big capital rushed to sell. It plummeted 50% within two days, leaving only retail investors feeling overwhelmed and hurt. How investors can avoid this kind of thunderstorm is one of the key points.
Moreover, at this stage, pharmaceutical investment has become more and more professional, and more difficult. For example, even industry professionals cannot make an accurate judgment on the subdivision of the circuit such as innovative drugs. Therefore, if they want to participate in the rebound in the Hong Kong stock capital round with innovative drugs as the standard-bearer, retail investors can participate through ETF funds.
In fact, this is true even for professional institutions.
Judging from the Hang Seng Pharma ETF (159892.OF) fund share growth trend, the year-to-date increase has more than tripled! However, considering the bleak view of domestic public fund issuance, the insane share growth of Hang Seng Pharmaceuticals ETFs does not rule out that most of them are bought by institutions.
Judging from the S&P Biotech ETF (XBI) in the US stock market, the long-term gains were not lost at all to individual stocks, and there is no risk that the market value will return to zero due to pipeline failure.
In other words, the essence of innovative drug investment lies in diversification and certainty. Odds are basic common sense in this industry, not a core driver. Therefore, participating in the Hong Kong stock innovative pharmaceutical industry through the Hang Seng Pharmaceuticals ETF would be a better choice.
Edit/Corrrrine