The Hong Kong stock pharmaceutical track is "full fire"! Opportunity? Fund managers speak up

The belief of fund managers going south to Hong Kong stocks has "worked" again, and the Hong Kong stock hospital track soared across the board today.

On May 14, a number of pharmaceutical stocks soared rapidly, and even well-known pharmaceutical companies soared by 62% in half a day, out of the state of penny stocks. Its trading volume surged from less than 1 million yuan in the previous day to more than 100 million yuan in half a day.

It is worth mentioning that the relationship between the pharmaceutical track of Hong Kong stocks today and the fundamental performance is weak, and it points more to the fact that after the risk appetite has increased significantly, Hong Kong stock funds and foreign investors have begun to pay attention to the valuation repair, price revaluation and expectation of over-falling varieties. Previously, the main strategy of institutional investors in the Hong Kong stock market, including the pharmaceutical track, was to "focus on the present and ignore expectations", that is, to pay more attention to companies with existing performance, which led to many companies that have not yet made a profit even if they have huge revenues, but also have funds to sell off to the "penny stocks" in the state of mini caps. Industry insiders judge that the Hong Kong stock market has spread to varieties other than performance, indicating that Hong Kong stock pharmaceutical investment has quickly moved away from the bear market mentality.

Over-falling pharmaceutical stocks soared across the board

The Hong Kong stock market was reborn almost overnight in the context of A-share fund managers' continued southward dipping through the Hong Kong Stock Connect, and the continued fast-paced issuance of Hong Kong stock thematic funds during the year, coupled with QDII funds and foreign investors covering the Hong Kong stock market from the US stock market and the Japanese and South Korean markets. Due to the fact that the Hong Kong stock market often discounts non-profit stocks beyond imagination in the bear market, the investment scope of institutions in Hong Kong stocks has become narrower and narrower for a long time, almost limited to state-owned enterprises, resources and a few large profit-making Internet companies such as Tencent and Bubble Mart.

On May 14, Dingdang Health, a fast-paced drug delivery company that is still losing money but has a high reputation in China, soared about 62.3% in intraday trading today, with a market capitalization of nearly HK$3 billion after a 16-month plunge of 82%, which made Dingdang Health recover from a "penny stock" that almost completely lost trading volume to a small-cap stock in one morning.

According to its 2023 annual report, Dingdang Health's total operating income is 4.857 billion yuan and net profit is -226 million yuan. Dingdang Health had been lacking institutional funding coverage until May 14, and the trading volume on May 13 was even less than 1 million yuan. On the morning of May 14, Dingdang Health's half-day trading volume was as high as 120 million Hong Kong dollars (equivalent to 110 million yuan), and the trading volume soared by as much as 10 times, indicating that Dingdang Health may have re-entered the scope of public funds and other institutions.

In addition to Dingdang Health, which has soared this year due to last year's plunge, as of midday on the 14th, Mace Health, Zhiyun Health, and Genting Xinyao, which have fallen by nearly 70% after listing, also rose 16.14%, 13.17%, and 5.95% respectively. In addition, Laekna Pharmaceutical, Sirnaomics Pharmaceutical, Spire Health, Yidu Technology and Yimaitong all rose strongly, driving the Hang Seng Healthcare Index up 1.52%.

The underperformance of pharmaceutical-themed funds triggered a catch-up gain

In the eyes of many fund managers, the jump in the pharmaceutical track of Hong Kong stocks has the characteristics of the market after the risk appetite has increased, and the various tracks of the market have the characteristics of turning up and making up for the rise.

Brokerage China reporters noted that since the beginning of this year, the Hong Kong stock market is mainly concentrated in the Internet, digital economy and state-owned enterprise dividends three tracks, pharmaceutical stocks and pharmaceutical theme funds this year's rebound performance has lagged significantly, with the top ten QDII funds of heavy Hong Kong stocks as an example, as of the end of the first quarter of this year, these into the top ten Hong Kong stock fund performance products are mainly heavy sectors are Hong Kong stocks Internet and state-owned enterprises, and the net value of the pharmaceutical theme fund rebounded behind other Hong Kong stock tracks.

In this context, when the Hong Kong stock market is fully diffused and risk appetite is improving, the pharmaceutical track with the characteristics of making up for the rise has attracted the attention of fund managers. "We've recently started to join the laggards, such as pharmaceuticals." A fund manager in Bilibili and Tencent, who are heavy in Hong Kong stocks, believes that the Hong Kong stock market in 2024 may be the performance of the whole track, and the rhythm of the market may have the characteristics of rotational performance, which means that if you can step on the rhythm of the track performance, you may get higher returns, taking Bilibili as an example, the stock representing the Internet track has risen by nearly 70% since February this year, while many pharmaceutical stocks have only 10% or even 5% performance in the same period.

This has made many fund managers with major holdings in pharmaceutical stocks suffer in this year's performance rankings. "Due to the overweight of the medical service sector, the performance of heavy stocks is poor, which is a serious drag on the net value, and the portfolio still underperformed the benchmark in the first quarter." The current domestic pharmaceutical industry policy is still in the stage of continuous optimization, and the market has gradually digested the previous concerns about policies such as centralized procurement and price reduction, and with the improvement of the level of domestic innovative drug enterprises, new investment opportunities are also bred in it, and the key words of pharmaceutical investment in 2024 will be innovation, going overseas, independent and controllable, and we should pay attention to those companies that are more concerned about the interests of shareholders.

Public offering to explore innovative drugs

Regarding the current investment in pharmaceutical stocks, many fund managers expect that pharmaceutical stocks will eventually be implemented in clinical data and revenue performance.

Wang Shicong, manager of the Southern Hong Kong Pharmaceutical Fund, believes that the core strategy of this year is to focus on mining the scarce value of listed companies in the pharmaceutical industry in the Hong Kong market, especially focusing on the leading assets of each sub-track, balancing their growth, operational stability and cash return and other aspects, and striving to form a collection of high-quality medical industry enterprises listed on the Hong Kong stock market, so that investors can fully share the growth of these enterprises, and on the basis of complying with the provisions of the investment scope. We seek to find value options with cost-effective value in markets such as A-shares and U.S. stocks as a supplement to the portfolio.

The above-mentioned fund manager emphasized that this year, the equity portfolio of Hong Kong stock pharmaceutical funds continued to be allocated in the style since its establishment, and still mainly focused on three ideas for allocation, which is also the direction of Hong Kong stock pharmaceutical assets with relative advantages, including leading innovative pharmaceutical companies, traditional pharmaceutical companies with dividend attractiveness and cost-effective valuation, special medical services, and consumer medical care. Compared with the beginning of the year, we can see some more positive signals on the pharmaceutical innovation side in the near future, which also strengthens the confidence in the allocation of innovative assets in the portfolio. In addition, listed companies in the traditional Chinese medicine, APIs, pharmacies and other sectors have also done in-depth research and corresponding allocation, and continue to pay attention to some potential stock opportunities with new product cycles in the U.S. stock market, believing that these targets can provide differentiated investment value compared with the Hong Kong market.

Yang Zhenxiao, manager of E Fund Pharmaceutical Fund, believes that the strength and sustainability of the rebound of medicine this year are relatively weak due to geopolitical disturbances and other factors. The low-valued traditional Chinese medicine and innovative drug industries catalyzed by favorable policies in the sub-sectors performed well, while the CXO (pharmaceutical R&D and production outsourcing) industry performed poorly, and continued to be optimistic about the performance of China's pharmaceutical industry, especially innovation-related pharmaceutical companies. Although the stock price performance of many companies year-to-date is average, the price of the secondary market will eventually gradually reflect the positive changes at the industrial level, so the position is not adjusted much in the general direction, but only some individual stocks are adjusted.

Zhou Sicong, manager of Ping An Medical and Health Fund, judged that domestic innovative drug companies entered an information vacuum period in January and February this year, and at the same time, due to the small number of dividend stocks in the pharmaceutical sector, the overall performance of the pharmaceutical sector in the first quarter was flat in the context of the strength of dividend value stocks, and innovative drugs also entered a shock stage after experiencing a big rebound before and after the Spring Festival. At the same time, WuXi and BGI companies have undergone significant adjustments due to the impact of the U.S. Biosecurity Act, which has also greatly affected the market's investment sentiment in the pharmaceutical sector, resulting in a sharp decline in the pharmaceutical sector as a whole, and a large decline in the pharmaceutical sector in the whole market. After the Spring Festival, the National Health Insurance Administration issued a notice on soliciting the "Notice on Establishing a Mechanism for the Formation of the Initial Price of Newly Listed Chemical Drugs to Encourage High-quality Innovation" and other favorable policies, and the pharmaceutical sector, especially the innovative drug sector, ushered in a strong rebound after a continuous sharp decline.

Editor-in-charge: Yang Yucheng

Proofreading: Zhao Yan