Recently, there has been a notable uptick in interest from fund managers toward the beleaguered pharmaceutical sector, which struggled throughout the previous yearThis shift has captured the attention of investors, resulting in a significant rise in the number of large public funds conducting rigorous research into pharmaceutical stocks, particularly those that had previously been overlookedThis transition in focus suggests an underlying need for repositioning within the sector.

Fundamental changes in the behavior of fund managers can be observed since the beginning of the yearFor instance, on January 7, the traditional Chinese medicine firm Zhenbaodao disclosed that it had been the subject of joint inquiries from multiple public funds post-New YearAmong the participating investment firms were notable names such as GF Fund, Bosera Fund, Huabao Fund, Tianhong Fund, and Haifutong Fund

This coordinated research initiative indicates a collective recognition of potential within a sector that had been previously neglected.

Similarly, Sanjing Medical published an announcement on the same day indicating evaluations conducted by leading funds like Ruifeng Fund, Huitianfu Fund, and Fortis FundThese comprehensive research efforts have not only intensified but have also spread across a wide range of pharmaceutical stocks, including stalwarts such as Guilin Sanjin, Fuerjia, and Zejing Pharmaceutical, all of which were subjected to detailed analysis by major public fund players like China Construction Fund, Bosera Fund, and Southern Fund.

This strategic approach, commonly referred to as a "high-cut low" swapping strategy, reflects a seasonal trend where funds migrate from sectors marked by high growth and overvaluation to those where valuation is lower and growth has been more subdued

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This is often a tactical decision made at the start of a new fiscal year.

Data indicates that pharmaceutical-focused equity funds underperformed last year, showing significant lossesFor example, even a star fund manager ranked among the top ten in performance for their overall portfolio, saw a loss in a pharmaceutical fund under their management, with returns from a tech-themed fund significantly outpacing itSuch stark contrasts underlie a broader trend of considerable losses within pharmaceutical investments, contributing to a resurgence of interest in the sector as fund managers seek potential rebounds.

Interestingly, many of the stocks scrutinized by funds still lack significant holdings in their portfoliosFor instance, despite a slew of funds engaging in research on Zhenbaodao, no fund currently lists this stock among its top ten holdingsThis discrepancy points to an opportunity for stocks that may experience major fluctuations due to increased institutional scrutiny without existing backing from funds.

Similarly, the case of Fuerjia reflects the same potential for emerging funds

As of now, Fuerjia does not appear among the top holdings of Bosera's healthcare fund, suggesting that future investments may be on the horizon given that the fund manager typically only conducts personal research when expecting substantial acquisitionsThis aligns with general trends indicating that as funds continue their investigative efforts, there may be an increase in financial commitments to promising pharmaceutical stocks.

The correlation between intensive research by public funds and potential stimulative effects on stock prices is further exemplified in recent trendsFor instance, Guotai Fund discovered the promising stock of Yimai Tong in the Hong Kong market, integrating it into their fund's holdings, effectively transitioning the stock from obscurity to prominence within the investment communityAs a result, Yimai Tong not only became a critical holding for Guotai Fund's offerings but also performed admirably within the pharmaceutical sector throughout 2024. A parallel situation was observed with the stock of Yunding Xinyao, where the acquisition by just one public fund propelled its status as one of the top performers in terms of share price increase over the past year within the Hong Kong pharmaceutical sector.

As economic recovery appears to gradually gain traction, certain segments within the healthcare sector are becoming increasingly attractive for investment, notably the consumer healthcare sector

Fund managers are beginning to identify areas in medical aesthetics, ophthalmology, and related consumer services as pivotal facets for future growth, particularly as macroeconomic conditions begin to stabilize.

Recent insights from Wang Zhengjiao, manager of the Southern Pharmaceutical and Health Flexible Allocation Fund, suggest that sectors closely tied to economic performance, such as medical aesthetics and consumer healthcare products, present promising long-term investment opportunitiesWhile acknowledging the likelihood of short-term market volatility, the macroeconomic landscape seems to signal a fortuitous turning point, potentially fostering a new upward trend in market performance.

In addition, Chen Ximing, a fund manager associated with Bosera, has recently emphasized the opportunities within the consumer healthcare spaceHe noted that after enduring a sustained downturn, the pharmaceutical industry is now navigating through a phase of low valuations and tempered market expectations amidst recovering operational performance metrics

His optimism points particularly toward the prospects in innovative pharmaceuticals and consumer healthcare sectors, indicating that structural opportunities lie ahead for investors who remain vigilant amid fluctuating market dynamics.

It appears that consumer healthcare is becoming the cornerstone of the next phase of investment by fund managers in the pharmaceutical arenaPan Tianqi, managing the Guolian Medical Consumer Hybrid Fund, echoes the sentiment that demand within the healthcare industry is poised to expand significantlyThroughout this transitional period, the pursuit of innovation in drugs and medical equipment will also likely receive burgeoning support from an increasingly conducive regulatory environmentThis, coupled with a favorable investment climate, sets the scene for enduring enhancements in business performance and operational health across a multitude of pharmaceutical sub-sectors.