According to market data, Changxin Technology debuted on the A-share market with a market capitalization of 3.66 trillion yuan, immediately claiming the title of the largest stock. On the same day, the semiconductor supply chain collectively declined, with GigaDevice hitting its daily limit and Biwin Storage and Montage Technology seeing significant share price drops. Meanwhile, innovative drug and power battery sectors rose against the trend, a development rich with implications.
Over the past two years, pharmaceutical stocks have been persistently undervalued due to prolonged valuation compression. This is partly driven by fundamental factors and significantly by the AI industry's "siphoning effect" on capital. With Changxin's listing, this AI siphoning effect has arguably peaked, leaving limited room for further gains. Consequently, the "high expectation gap" for pharmaceutical stocks makes their valuation advantage increasingly prominent. Changxin's IPO represents a "good news sell-off" for the semiconductor sector but a "relief rally" for the pharmaceutical sector.
How long have pharmaceutical stocks been undervalued?
As of July 21, 2026, the pharmaceutical sector's PE (TTM) stood at 29 times, placing it at the 26th percentile of the past 20 years. Its valuation premium over the broader A-share market (excluding financials) was only 11%, a level at the 3.0% percentile over the same period. This indicates that the relative valuation of the pharmaceutical sector has fallen to near its lowest point in two decades. Fund holdings data shows that in the first quarter of 2026, non-pharmaceutical-themed funds allocated only 4.82% of their heavy positions to the sector, the lowest since 2010. Institutional allocation to the sector has hit a record low. Since September 24, 2024, the pharmaceutical sector has underperformed the CSI 300 Index by 21 percentage points, a rare occurrence in its 20-year history.
Notably, in the first half of 2026, the pharmaceutical and biotech sector fell by 8.4%, underperforming the CSI 300 by 13.7 percentage points. During the same period, AI and semiconductor sectors continued to rise, creating a clear capital siphoning effect. Meanwhile, industrial capital has been actively voting with real money. In the first half of this year, 145 A-share pharmaceutical companies repurchased shares totaling over 13.3 billion yuan, with June alone seeing more than 5.7 billion yuan in buybacks, a 72.22% year-on-year increase in participating companies. Since April, A-share pharmaceutical companies have initiated nearly 60 buyback programs, while Hong Kong-listed pharmaceutical companies have completed over 300 concentrated buybacks. Bottom signals have never been so dense.
The peak of AI siphoning has arrived
The undervaluation of pharmaceutical stocks is largely driven by the AI siphoning effect. Zhang Jun, head of research at China Asset Management (Hong Kong), stated that the core reason for the pharmaceutical sector's adjustment was the AI industry's capital siphoning, not a deterioration in the biotech industry's own fundamentals. Once capital flows out of the AI sector, its return will drive a recovery in the biotech sector. This "once" is now becoming a reality. Since mid-to-late June, the previously strong AI chain has reversed sharply, with a batch of related funds seeing their net values drop over 30% from their peaks, and year-to-date returns nearly halved. In contrast, the previously sluggish pharmaceutical sector has emerged as a new market leader. Wind data shows that as of July 24, since June 22, the top 45 performing funds in the market have almost entirely bet heavily on pharmaceutical stocks, with returns exceeding 20% in about a month.
Now, Changxin's listing marks the formal establishment of a pricing anchor for the "giant" in the AI and semiconductor sector. The market's earlier concerns about a "capital drain" effect were partially absorbed by market adjustments before the IPO. The listing itself has given hesitant capital a reason to enter. Changxin has provided a valuation anchor for tech stocks, but it also means that the biggest expected difference in the tech sector has been realized. With limited room for subsequent gains, capital is inevitably shifting toward undervalued sectors.
The fundamentals of pharmaceutical stocks are undergoing a qualitative change
If low valuations are the "cause," then the improvement in fundamentals is the "effect." In the first quarter of 2026, Hengrui Medicine reported operating revenue of 8.141 billion yuan, a 12.98% year-on-year increase, and net profit attributable to shareholders of 2.282 billion yuan, up 21.78%. Sales of innovative drugs reached 4.526 billion yuan, a 25.75% increase, accounting for 61.69% of drug sales revenue, surpassing the 60% mark for the first time. BeiGene reported a net profit attributable to shareholders of 1.608 billion yuan in the first quarter, turning a profit from a loss, with total operating revenue of 10.544 billion yuan, up 31.02% year-on-year. China's leading pharmaceutical companies have begun to concentrate on profitability, which is not an isolated phenomenon but a systemic turning point.
More noteworthy is the surge in outbound licensing of innovative drugs. In the first half of 2026, the total value of outbound licensing deals for Chinese innovative drugs reached approximately $110 billion, reaching 80% of the total for the entire 2025 year, setting a new record. In the first quarter alone, the total value of these deals exceeded $60 billion, close to half of the 2025 annual total. The amount of Chinese innovative drug BD outbound deals is climbing at an astonishing rate. Meanwhile, global biopharmaceutical investment and financing continue to recover. In the first half of 2026, the total amount of global primary market investment and financing for innovative drugs was $26.75 billion, a 58.5% year-on-year increase. Additionally, policy support is increasing. The review of CGT is expected to be accelerated, the National Essential Drug List is including domestic Class I innovative drugs for the first time, and the principle of "non-new drugs for procurement" remains clear. The core focus for the innovative drug sector is shifting from "whether it can go overseas" to "whether commercialized profits can be realized." Uncertainty is significantly decreasing.
The final "shoe" has dropped
Changxin's listing is the final "shoe" for pharmaceutical stocks. Before this, the market was always worried about a significant uncertainty: how much capital would this largest IPO in the history of the STAR Market drain from the market? Now, the shoe has finally dropped. The issuance market value was about 579.2 billion yuan, lower than the market's earlier expectation of hitting one trillion yuan. On the first day of listing, wait-and-see capital returned, and the Shanghai Composite Index, Shenzhen Component Index, and ChiNext all turned positive. The logic of "relief after bad news" is moving from expectation to reality.
The pharmaceutical sector now stands at the starting point of a "high expectation gap." With valuations at historical lows, fund holdings at historical lows, continuously improving fundamentals, and a surge in outbound licensing, these factors, combined with the "peak of AI siphoning," will lead the market to reprice the valuation advantage of pharmaceutical stocks. Looking back, every shift in market style began with a landmark event. July 27, 2026, the day Changxin Technology was listed, may be that event. From AI to pharmaceuticals, from "siphoning" to "return," from "undervaluation" to "revaluation" – the future performance of pharmaceutical stocks deserves close attention. This time, the "shoe" has truly dropped.
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