The Zhitong Finance App learned that CICC released a research report saying that after more than 2 years of systematic adjustments, the pharmaceutical sector has entered the value investment range. With the gradual stabilization of domestic policies and the fading of the innovation bubble, outstanding representatives of domestically produced innovative drugs and medical devices began to stand out under the storm. In the domestic hospital market and overseas market in 2024, it is expected that leading domestic companies will perform remarkably well.

CICC's views are as follows:

Undervalued, high-dividend assets had a comparative advantage at the beginning of the year.

We judge that the domestic economic growth forecast for 2024 and the expectation of US interest rate cuts will have a profound impact on the allocation of various types of assets. Prior to further changes in these two, defensive asset allocation was still our most recommended asset category. As far as the pharmaceutical sector is concerned, 2023H2 medical anti-corruption has a lagging impact on industrial entities, and weak domestic demand has plagued related sectors such as medical services and CRO in the short term. Combined with the relatively sluggish start of the stock market in early 2024, it may lead to a relatively mediocre or average annual reporting season. The undervalued and high-dividend strategy was our most recommended configuration strategy at the beginning of the year.

The innovation core remains unchanged, and liquidity is picking up or enhancing the resilience of the innovative drug sector.

After the 2023-2023 valuation digestion and sector adjustments, the innovative drug sector has entered a reasonable valuation range. Despite experiencing the phased impact of policies such as health insurance fee control and medical anti-corruption, the path of transformation and upgrading of the domestic pharmaceutical industry system has not changed, and the core of encouraging innovation has not changed. As the first-stage innovation bubble fades, we believe that phased pharmaceutical or strategic breakthroughs by outstanding companies under Big Wave Taosha are expected to bring about individual stock markets. Furthermore, interest rate cuts in the US dollar are expected to bring about a recovery in liquidity. We believe this will be expected to further enhance the stock price elasticity of the innovative drug sector, especially the Hong Kong innovative medicine sector.

It is recommended to focus on overseas exports and opportunities to increase the localization rate.

Domestic health policy reforms usually start with pharmaceuticals, then consumables, and then test. The main investment ideas in the innovative pharmaceutical sector in the past few years can provide some forward-looking guidance for subsequent investment in other sectors. The rise in domestically produced innovative drugs in high-grade hospitals and the introduction of innovative drugs mentioned repeatedly in the next few years may indicate that in the next few years, the localization rate of high-grade hospitals will increase and exports of excellent products are expected to accelerate in the next few years. Combined with uncertain global economic growth expectations, whether in mainland China, “leading the way”, or regulated markets, high-quality and inexpensive Chinese manufacturing may be more cost-effective. We believe this represents an opportunity to increase the localization rate in the domestic market and speed up exports overseas.

The market target of pure domestic demand, which is logical for a long time, also requires close attention.

Affected by factors such as the economic environment and funding, we believe that sectors such as medical services, which are driven by relative domestic demand, continue to be pressured, and that valuations have been adjusted quite clearly. Looking at a medium- to long-term perspective, some alpha-related assets have slowly entered the observable stage. Combined with the turbulence of the current international situation in the past 2 years and the difficulty of predicting, we also recommend focusing on domestic demand market-driven assets with relatively independent markets and allocating them on dips.

risks

The risk of clinical failure, the risk of price reductions in health insurance negotiations exceeding expectations, and falling short of expectations in commercialization and business expansion.