After a period of correction and consolidation, the healthcare sector has shown robust performance over the past two months, with the once-prominent "golden track" seemingly returning to mainstream portfolio focus. Looking ahead, can this momentum be sustained into the second half of the year? Which specific sub-sectors deserve close attention? Let's hear from Liang Furui, fund manager of the Great Wall Healthcare Industry Fund.
What drove the recent rally in the healthcare sector?
Liang Furui, fund manager of the Great Wall Healthcare Industry Fund, attributes the approximately two-month rally since mid-June to a combination of internal and external factors. Internally, high-growth tracks within healthcare—such as CXO, innovative drugs, and life science upstream—are seeing positive industrial trends. Clinical development of innovative drugs, out-licensing deals, and commercial launches are progressing steadily. The CXO and related supply chains benefit from robust global R&D investment in innovative drugs and China's competitive advantages in the R&D pipeline, leading to rapid growth in earnings and orders. Additionally, technological advancements are creating new industry increments, such as AI large-model companies entering innovative drug R&D model training, which generates new outsourcing demand, and the successful Phase 3 clinical trial of mRNA tumor vaccines validating a new technical pathway. Externally, the sector experienced a deep correction starting in mid-April due to macro liquidity concerns and adverse domestic and international policy headwinds. This left high-growth sub-sectors like CXO, innovative drugs, and life science upstream with attractive valuations, while institutional positioning remained severely underweighted.
What is the outlook for the healthcare sector in the second half of the year, and which sub-sectors are favored?
Liang expects the healthcare sector to continue offering structural opportunities in the second half. The July-August earnings season has confirmed the high growth of innovative drug supply chain sub-sectors like CXO and life science upstream. Upcoming global academic conferences, including the World Conference on Lung Cancer (WCLC) in September and the European Society for Medical Oncology (ESMO) meeting in October, will disclose clinical data on multiple product pipelines, including ADC, bispecific antibodies, and panRAS inhibitors. Negotiations for innovative drug inclusion in medical insurance are likely to boost future commercial sales, keeping high-growth tracks like innovative drugs and their supply chains in the spotlight. Despite the recent rebound, institutional holdings in healthcare remain relatively low, suggesting room for further capital inflows. Over the medium to long term, the high-growth sub-sectors are supported by favorable industrial trends, with new technologies and fields continuously emerging, driving incremental demand. China's innovative drugs and related supply chains are gaining global competitiveness, while valuations of quality companies in these tracks remain attractive and institutional allocations are still modest. The current period is seen as an opportune window for medium-to-long-term positioning in high-growth tracks and quality names. For the second half, the focus should remain on high-growth sub-sectors, particularly innovative drugs and their upstream supply chains, including CXO and life science upstream, driven by policy support, sustained out-licensing deals, commercial sales growth, and advancing R&D pipelines.
How do you view the outlook for A-share and Hong Kong-listed innovative drug stocks?
Liang notes that short-term performance of A-share and Hong Kong innovative drug stocks may diverge due to differences in investor composition and market liquidity. However, over the medium to long term, stock performance in both markets will be primarily driven by the development of individual innovative drug companies. Leading quality firms are gradually establishing advantages in early-stage product positioning, R&D advancement, out-licensing, and commercial sales. Looking ahead, both A-share and H-share innovative drug markets are expected to see differentiation, with more competitive companies likely to deliver their own alpha returns. Conversely, companies that rely on narratives or "beat expectations" without delivering concrete results are expected to be gradually abandoned by capital markets.
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