The ESMA Pharmaceutical Index became the first and only sector to climb to a new high after the stock market crash in Japan on August 22, entering bear market territory.
As of last week, the pharmaceutical industry's stock prices have risen by 10%, the highest among the 33 sectors of the ESMA Index, from early July to last week. Data shows that the pharmaceutical industry ranked 18th in performance in the first half of this year.
The pharmaceutical industry is usually considered defensive stocks, as they are less affected by economic downturns. Due to risk aversion, pharmaceutical companies outside of Japan are also performing well. In the United States, healthcare stocks have risen from the 6th to the 3rd position among the 11 sector-specific indices of the S&P 500 in August. In the STOXX Europe 600 Index, healthcare ranks 7th among the 20 sectors in August.
Kiyoshi Ishigane, Chief Fund Manager at Mitsubishi UFJ Asset Management, stated that the overall rebound of Japanese pharmaceutical stocks represents the 'other side of global economic slowdown concerns, which have triggered an overall market adjustment.'
Unlike many companies focused on the domestic market in Japan, pharmaceutical companies have room for expansion overseas. Yasuhiko Hirakawa from Rakuten Investment Management stated that this makes pharmaceutical stocks attractive for growth, with high valuations and return on investment. As semiconductor-related stocks are already high in price, pharmaceutical companies are becoming a target for buying because their stock prices are lagging behind other growth stocks and they have strong profitability.
Since July, the best-performing pharmaceutical stocks have been companies with relatively high market capitalization. Sumitomo Pharma has led the way, soaring 67% until last week. Otsuka Holdings and Chugai Pharmaceutical have both risen at least 25%. During this period, the ESMA Index has fallen 4.5% and is still down over 8% from its July peak.
If investors' concerns about the Japanese stock market and economic outlook are alleviated, pharmaceutical stocks may face selling pressure due to their performance so far. Ishigane from Mitsubishi UFJ Asset Management does not consider a US economic recession to be his main forecast, but he still expects pharmaceutical stocks to remain popular for at least the next six months.