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On the last trading day of July, the pharmaceutical-related market swept in again. Wind data showed that as of the close of the day, the CSI Medical Index (399989) rose 5.34% in a single day, and all 50 constituent stocks rose, with an average increase of 5.73%. Among them, Zhaoyan Pharmaceutical, KingMed Medical, and Tongce Medical rose by the daily limit.

Affected by this, 43 pharmaceutical-themed ETFs rose across the board, with one-third of them rising by more than 5% in a single day. "The pharmaceutical (sector) rose today, and I have quickly added positions." Investor Xiao Xia (pseudonym) told China Business News that his move was to smooth out previous losses.

Xiaoxia's move is one of the current choices for investors. After three years of correction, nearly half of the medical theme ETFs have become "raw funds" with a par value of less than 0.5 yuan. The reporter noticed that the confidence of funds to buy at the bottom has increased recently. More than 4 billion yuan of funds have entered the market to buy stocks this year, and the shares of many medical theme products have grown against the trend. At the same time, fund companies have gradually taken action on this track, and many theme products have been launched intensively.

The pharmaceutical sector is on the rebound

With the rise of sectors and individual stocks, medical-themed ETFs also rose. According to statistics from China Business News, 43 stock ETFs with "medical" or "pharmaceutical" in their index names rose by more than 3% in a single day, and 15 products such as GF CSI Medical ETF and Tianhong Guozheng Biopharmaceutical ETF rose by more than 5%.

Huo Huaming, fund manager of GF CSI Healthcare ETF, believes that in the short term, the market is trading on the Fed's recent interest rate cut expectations. There are a large number of CXO companies in the pharmaceutical and medical sector. The orders of such companies come from innovative drug companies, and the interest rate determines whether these innovative drug companies can raise funds well. Therefore, once the market cuts interest rates, it will be a big boon to CXO companies.

"From a medium- to long-term perspective, the pharmaceutical and medical sector has been adjusting continuously since July 2021, and the correction has lasted for three years. The correction time and adjustment space are relatively sufficient, and there is room for valuation recovery," Huo Huaming told Caixin.

"From a valuation perspective, the current market has a large room for recovery. Industries with better sustainability in the future are expected to be in the previously oversold sectors, such as pharmaceuticals, home appliances, computers, and high-end manufacturing." A Morgan Stanley fund person told Caixin that it is difficult to see a reversal in the medium term, and it is necessary to track the subsequent policy effects.

On the news front, Li Li, director of the National Medical Products Administration, presided over a meeting on July 30 to study and deploy the reform of the review and approval of clinical trials of innovative drugs, and reviewed and approved the "Pilot Work Plan for Optimizing the Review and Approval of Clinical Trials of Innovative Drugs". On the same day, Shanghai issued the "Several Opinions on Supporting the Innovation and Development of the Whole Chain of the Biopharmaceutical Industry", which emphasized increasing support for the development of innovative medical devices.

However, this rebound is still a drop in the bucket for pharmaceutical-themed products. After three years of downward trend, the net value of such products has fallen several times, and there are many "gross bases" with a par value of less than 1 yuan.

According to statistics from China Business News, as of July 30, among the 43 medical-themed ETFs in the above range, the latest adjusted unit net value (i.e., the unit net value adjusted after considering dividend reinvestment) of less than 1 yuan accounted for 88.37%. There were 21 medical-themed ETFs with a par value below 0.5 yuan, accounting for 48.84%. In other words, these products have lost more than 50% since their inception.

Among all the stock ETF products in the market, the top six ETFs with the lowest ranking are all pharmaceutical-related theme products, with the adjusted unit net value of only "two or three cents". For example, Ping An CSI Pharmaceutical and Medical Device Innovation ETF, E Fund CSI Medical ETF, and Tianhong Guozheng Biopharmaceutical ETF were all established around June 2021, around the peak of the pharmaceutical industry, and their net value has now lost more than half.

Frequent reverse investment actions

From a popular industry sought after by the market to now often at the top of the decline list, the pharmaceutical and medical related sectors have undergone nearly three years of adjustment. Data shows that the CSI Medical Index has been fluctuating downward since it surged to 19,992 points in July 2021, and fell to 5,588.5 points on July 9 this year, hitting a new low in nearly a decade.

From the performance point of view, the performance of pharmaceutical theme ETFs is even worse, with the average return of the above 43 products from the beginning of the year to July 30 being -24.48%. The interval returns of the 28 products with data for the past three years are between -70% and -47%. Among them, the China Universal CSI Biopharmaceutical ETF has fallen the most, with a cumulative return of -68.54% in the past three years.

Under the background of overall correction, the bottom-fishing funds of "buying more when the price drops" are still entering the market. Wind data shows that as of July 30, 787 million yuan of funds have flowed into the above-mentioned medical theme ETFs since this month, and the net inflow has exceeded 4 billion yuan this year. Among them, Huabao CSI Medical ETF has attracted 2.076 billion yuan this year, and E Fund CSI 300 Medical and Health ETF and Tianhong Guozheng Biomedicine ETF have attracted more than 500 million yuan of funds respectively.

Specifically, there are obvious differences in investors' choices, with some investors leaving the market and others increasing their positions against the trend in order to reduce costs. Wind data shows that among the 43 medical-themed ETFs mentioned above, 27 ETFs have achieved share growth against the trend this year, accounting for more than 60%.

Among them, Ping An CSI Pharmaceutical and Medical Device Innovation ETF had the largest share growth, reaching 29.53%, with a total increase of 883 million shares during the year. Yinhua CSI Chinese Medicine ETF, E Fund CSI Healthcare ETF, Southern CSI Innovative Medicine ETF, Tianhong Guozheng Biopharmaceutical ETF and other products also achieved a share growth of more than 20%. The adjusted unit net value of these products is mostly less than 0.5 yuan.

At the same time, some products have also been abandoned by investors. For example, the fund shares of Tianhong CSI All-Share Healthcare Equipment and Services ETF have decreased by 29.86% this year, and Yongying CSI All-Share Medical Equipment ETF has suffered more than 800 million redemptions. As of July 30, the year-to-date decline of both products exceeded 22%.

At the same time, China Business News noticed that the pharmaceutical sector, which has gradually become a less popular track, has recently welcomed the issuance of many new funds.

Wind data shows that on July 26, Dongxing Pharmaceutical Bio-Quantitative Stock Selection started issuing; before that, Penghua CSI Hong Kong Stock Connect Medical and Health Integrated Connection and China Europe CSI All-Share Healthcare Equipment and Services Index announced new listings on July 22 and 25 respectively, and Invesco Great Wall CSI Hong Kong Stock Connect Innovative Drug ETF also started subscription on July 12.

Prior to this, several pharmaceutical funds and pharmaceutical index funds were also launched into the market. According to statistics from China Business News, the number of pharmaceutical-related funds launched this year has risen to 20. In addition, there are several theme products waiting for approval.

What is the layout logic?

Whether it is the entry of funds at the bottom or the active release of new products, what is implied behind it is the timing layout and optimistic prediction of the bottom of the pharmaceutical track. An investment research person from a fund company told Yicai that his company has recently discussed the pharmaceutical track and believed that the track has reached the bottom and may be deployed in the second half of the year.

At the same time, many pharmaceutical fund managers are optimistic. "The adjustment of the pharmaceutical industry in recent years is due to the weak fundamentals of the pharmaceutical industry in recent years. On the other hand, after the huge market of track stocks from 2019 to 2021, most of the sub-industries of the pharmaceutical sector are at a high level of absolute and relative valuations. After the collapse of track stocks, the pharmaceutical industry has entered a stage of valuation digestion." Zhou Sicong, fund manager of Ping An Fund, told China Business News that at present, the absolute and relative valuations of the pharmaceutical industry as a whole are at the bottom of the historical range, and the valuations of almost all pharmaceutical sub-industries are also at the bottom range.

In Zhou Sicong's view, in addition to the long-term logic, the current pharmaceutical sector has short-term catalysts and hot investment themes, which are conducive to boosting the attention of the pharmaceutical industry. In addition, the valuation of the pharmaceutical industry has returned to the bottom of absolute and relative valuations. The institutional holdings have fallen after the rebound and the panic selling caused by CXO has returned to an extremely low level.

"The long-term investment logic of the pharmaceutical industry based on the aging population and the silver economy has not changed. Although the development of the pharmaceutical industry is greatly affected by policies, national policies have continued to improve in recent years and encourage innovation. In the future, it will promote the further development of the pharmaceutical industry, especially the development of innovative drugs and innovative medical devices and equipment." she said.

At the current point in time, Zhou Sicong believes that, in general, the opportunities at the market level outweigh the risks, and the overall risk will not be too great. "From the perspective of the entire pharmaceutical industry, in the context of an overall upward policy cycle and a new round of global product cycles, the overall risk is not great, but there may still be some uncertainties at the individual stock level."

Ouyang Juan, fund manager of the equity research department of Golden Eagle Fund, is also optimistic. She told China Business News that in the short term, the one-year rectification work may be completed and medical anti-corruption will become normalized; from the data of the hospital side, the number of surgeries and outpatient visits has returned to normal and is rising steadily; the pharmaceutical industry is operating steadily, and the quarterly year-on-year growth rate may usher in high growth in the second half of the year.

"In the medium and long term, the rigid demand for medicine will continue to increase as the aging population accelerates. For example, concepts such as healthy aging and the silver economy will give rise to incremental demand for aging. In terms of pharmaceutical companies, Chinese pharmaceutical companies continue to break through areas of foreign monopoly." Ouyang Juan said that she will focus on three major directions: innovative drugs, medical devices and equipment, and traditional Chinese medicine.

She took innovative drugs as an example for analysis. "Drugs that truly meet clinical value are expected to stand out. China is moving from the me-too PD-1 involution pattern to differentiated ADC varieties, and cooperating with MNC companies to achieve large-scale BD transactions. The innovative drug industry has entered a stage of rapid development."