Chen Heng, China Commercial Fund: The long-term investment path of the pharmaceutical sector after the epidemic

Source: China Economic Network

China Economic Network Beijing, March 23 (reporter Kang Bo) Recently, although the epidemic has been completely controlled in China, but from a global point of view, the degree of spread has not been alleviated, throughout this emergency, the pharmaceutical industry is undoubtedly the focus of global attention, and for the pharmaceutical industry in the capital market, it has shown short-term and long-term changes.

Chen Heng, a fund manager under China Commercial Fund Company, believes that in the short term, the market demand for protective tools and new crown drugs has increased significantly, but in the long run, the impact on medical informatization, R&D responsiveness and clinical drug habits is more profound. Chen Heng introduced that the long-term impact is mainly reflected in three aspects, one is the institutional adjustment of the disease control system, virus research, vaccine development, drug imitation and other lines; the second is the demand for online diagnosis and treatment, remote assistance stimulation; the third is the impact on the clinical medication habits of infectious diseases, such as the use of immunomodulators, the clinical use of antiviral drugs and so on. In the future, the key words that dominate the development of the pharmaceutical industry will still be innovation, global competition and medical services.

Specific to investment, it said that in the future, more research resources will be invested in high-end medical devices and equipment, globally competitive featured APIs, and medical informatization, specialized medical services and other segments.

Taking medical devices as an example, in the past decade, China's medical devices have mainly been low-end products, of which massage health care appliances, medical consumable dressings and other categories account for a relatively large proportion. In the future, the demand for low-end products will enter a stable period, and some head equipment companies will gradually have strong competitiveness in technology and products, and will gain more market share, and will gradually increase their international market share and go to overseas markets.

For individual investors, because the pharmaceutical industry is a complex system, it requires more professional knowledge and a more professional system. Therefore, the best way to invest should still be to invest in the "calendar effect", that is, it is recommended to use the fixed investment method to participate.

For the impact of the recent sharp decline in the global stock market on A shares, Chen Heng believes that investors do not have to worry too much, although a share has recently been adjusted to a certain extent driven by the periphery, but the resistance to falling is more obvious, which first benefits from the effective control of the domestic epidemic. In addition, from the overall point of view, the valuation of the A-share market still has advantages in the world.

The following is a transcript of the interview:

Q: The epidemic has made the market generally optimistic about the development of the follow-up pharmaceutical industry, how do you think about the future growth space of the pharmaceutical industry?

Chen Heng of China Commercial Fund: I think that the impact of the epidemic on the pharmaceutical industry is somewhat staged, and some are long-term, which need to be carefully identified and cannot be generalized. For example, the demand for protective tools may have a greater short-term impact, but the demand for medical informatization may be long-term; the demand for new crown drugs may be short-term, but it is long-term to identify the strength of R&D response capabilities and change clinical medication habits through the epidemic.

Q: What will be the biggest change in medicine from the pandemic? What are the long-term implications?

Chen Heng of China Business Fund: The long-term impact is mainly reflected in three aspects, one is the institutional adjustment of the disease control system, virus research, vaccine development, drug imitation and other lines; the second is the demand stimulation for online diagnosis and treatment and remote assistance; and the third is the impact on the clinical medication habits of infectious diseases, such as the use of immunomodulators, the clinical use of antiviral drugs, etc. It is believed that with the subsidence of the epidemic, the drug market and the medical market will gradually recover, and the key words that dominate the development of the pharmaceutical industry will still be innovation, global competition and medical services.

Q: What segments are you optimistic about in terms of pharmaceutical investment in the future?

Chen Heng of China Merchants Fund: In the future, more research resources will be invested in high-end medical devices and equipment, characteristic APIs with global competitiveness, medical informatization, specialized medical services and other subdivisions.

Judging from the situation of the medical device and equipment industry itself, in the past decade, China's medical devices are mainly low-end products, of which massage health care equipment, medical consumable dressings and other categories account for a relatively large proportion. After 2010, the growth rate of low-end equipment exports has declined due to fierce price competition, gradual satisfaction of demand, domestic industrial structure and cost changes. In the future, we judge that the export of low-end device consumables has gradually entered a stable period, and the overall growth is expected to be close to the industry growth rate; but as some head device enterprises gradually have strong competitiveness in technology and products, China's medical device exports will rely more on high-end varieties to break through in the future to obtain market share, and technical barriers and product added value will be improved. While domestic medical device companies carry out import substitution in the domestic market, they will gradually increase their international market share and move towards overseas markets.

In addition, China's global competitive advantage in the field of advanced pharmaceutical manufacturing such as bulk APIs, specialty APIs, cro/cdmo and so on has also been fully established. Under the current global supply and demand pattern, many high-quality specialty drugs and APIs have grown rigidly and rapidly every year, while quality standards have been improved and environmental protection has been remediated, and the supply-side reform has been obvious. The change in the supply and demand structure makes the future direction of China's advanced pharmaceutical manufacturing will be a certain high boom. The competitiveness of Chinese enterprises in these fields is based on the comprehensive system of our strongest chemical industry chain foundation, chemical synthesis talent reserve and advanced manufacturing capabilities in the world, and there is almost no possibility of subversion and replacement by other regions in the short term. The recent epidemic has further improved the prosperity.

In addition, medical informatization is also a direction worth paying attention to. From a policy perspective, encourage the use of digital technologies such as big data, artificial intelligence, and cloud computing to better play a supporting role in epidemic monitoring and analysis, virus traceability, prevention, control, and treatment, and resource allocation. Medical informatization technology can help the construction of public health system and the implementation of hierarchical diagnosis and treatment in multiple dimensions.

Finally, some specialized medical services, such as ophthalmology, did not see many patients in the first quarter due to the epidemic prevention mechanism. But on the other hand, students are currently generally adopting online education, and the time spent using screens has increased significantly, so ophthalmology will become one of the more focused specialty directions.

Q: In the face of this year's soaring and plunging volatility of the market, how do you think investors should operate?

Chen Heng, China Business Fund: In the long run, the probability of the pharmaceutical industry outperforming the market is high, mainly because of the increase in the aging population and the improvement of the level of medication. From the perspective of investment, because the pharmaceutical industry is already a complex system, it needs more professional knowledge and a more professional system to invest. Therefore, at present, pharmaceutical funds are a better investment method for individual investors, investors can correspond to the "calendar effect" of the pharmaceutical industry to invest, and it is recommended to use fixed investment to participate.

Q: What other sectors are you very optimistic about?

Chen Heng of Huashang Fund: In the future, we will also pay attention to the following directions, first of all, new infrastructure, and some of the stimulus policies introduced in the early stage are mainly concentrated on new infrastructure, so we still pay more attention to the entire investment direction of new infrastructure. The other is the pharmaceutical industry just mentioned, the new crown epidemic has brought many short-term or long-term impacts on the pharmaceutical industry, and the pharmaceutical segment will usher in a sustained long boom cycle. There is another direction that will stimulate consumption, investors can focus on education, catering, training and so on.

Q: Recently, overseas markets have fluctuated greatly, and US stocks have been circuitized many times, how do you think this will affect A shares?

Chen Heng of China Commercial Fund: Relatively speaking, A shares still show a relatively strong resilience, and investors do not have to worry too much about the fluctuations of the A-share market. Although the A-share market is driven by the periphery and has also been adjusted to a certain extent, the resistance to falling is more obvious. This first benefits from the effective control of the domestic epidemic. In addition, from the overall point of view, the valuation of the A-share market still has advantages in the world. In the future, we still need to pay attention to the trend of the outer market in the short term.

Fund Manager Introduction:

Chen Heng, Chinese nationality, bachelor's degree. From July 2005 to September 2006, he worked in Huiyuan Group as a research and development officer; from July 2008 to April 2010, he worked at Tianxiang Investment Consulting Co., Ltd. as the leader of the industry research team; from April 2010 to May 2014, he worked at Dongxing Securities Co., Ltd. as the research director; He joined China Merchants Fund Management Co., Ltd. in May 2014 and served as a researcher, and from October 20, 2016 to July 25, 2017, he served as the fund manager assistant of China Merchants Value Select Hybrid Securities Investment Fund. Since July 26, 2017, he has been the fund manager of China Commercial Value Select Hybrid Securities Investment Fund, and since July 12, 2018, he has been the fund manager of China Merchant New Power Flexible Allocation Hybrid Securities Investment Fund. On December 27, 2019, he served as the fund manager of The Equity Securities Investment Fund of Huashang Pharmaceutical and Medical Industry. On July 26, 2017, he was appointed as the fund manager of China Commercial Value Select Hybrid Securities Investment Fund on January 8, 2020.