Is the pharmaceutical industry hitting bottom this time? Which directions are worth paying attention to?

Ask AI · How can innovative drug exports reshape the growth logic of domestic pharmaceutical companies?

Since September last year, the pharmaceutical sector has undergone a deep adjustment. As of the end of March 2026, the Shanghai-Shenzhen 300 Pharmaceutical Index has retraced over 18%, and the Hang Seng Hong Kong Stock Connect Innovation Drug Index has fallen by 20%(Data source: Wind, data range from September 5, 2025, to March 30, 2026). However, recently, against the backdrop of intensified global market volatility, the pharmaceutical sector has defied the trend and strengthened, with some leading companies’ stock prices reaching new highs. This naturally prompts investors to consider: Has the darkest moment for the pharmaceutical sector passed? What directions are worth capturing now? Based on objective data, this article will analyze these two questions.

1. Has the pharmaceutical sector bottomed out?

From multiple signals such as comprehensive valuation, institutional holdings, and fundamentals, the pharmaceutical sector currently shows marginal improvement through multi-faceted resonance. Some high-growth sub-sectors have begun to accumulate rebound momentum. Of course, given the current constraints of geopolitical conflicts, a full trend reversal still requires further validation through a rebound in market risk appetite and improvement in industry fundamentals.

Three major signals favoring stabilization of the pharmaceutical sector:

First, active fund allocations have entered relatively low historical levels. In Q4 2025, the proportion of pharmaceutical holdings in active public funds was 8.0%, down 1.8 percentage points from the previous quarter, placing it at a near five-year low.

Second, valuations are also at relatively low levels. The Shanghai-Shenzhen 300 pharmaceutical index has fallen to a historically relatively low percentile over the past decade(11%).

Third, signs of marginal improvement in fundamentals. For example, global innovation drug R&D activities are recovering, driving growth in CXO industry orders; domestic CRO industry also shows a “volume increase with stable prices” trend, with many CXO leaders raising their 2026 guidance. Additionally, as R&D pipelines enter harvest periods, several biotech companies have turned profitable, with initial signs of an earnings inflection point. Meanwhile, innovation drug exports remain active in 2026, which is expected to further support fundamentals.

Tool-based allocation guide: Which directions in future pharmaceuticals are worth关注？

The above signals collectively point to the sector, but considering the macro environment’s ongoing uncertainties in the short term, the market is more likely to develop in a “left-side layout + catalytic-driven” oscillating upward pattern, making rapid breakthroughs unlikely. Therefore, investment strategies should focus more on structural opportunities.

So, what specific structural opportunities should be prioritized? In summary, the main theme of pharmaceutical investment still revolves around “innovation,” but its connotation is continuously broadening. On one hand, innovative drugs and their industry chains remain the most resilient and logical directions, especially CXO companies with strong performance realization capabilities, optimized client structures, and innovative drug companies with “performance realization + significant clinical data readout + technology platform” triple logic. On the other hand, frontier technologies such as AI drug discovery, gene therapy, and brain-computer interfaces are constantly breaking through, although some are still in early stages, their long-term space is enormous. Meanwhile, excellent companies in medical devices, raw materials, and other fields are accelerating their “going overseas,” and if they can open a second growth curve, they are also worth continuous attention.

However, for ordinary investors, investing in individual pharmaceutical stocks faces many challenges, such as high thresholds for pipeline, clinical, regulatory, and export order tracking. Instead of chasing “blockbuster” stocks, it might be better to consider using ETFs to weave a network covering industry leaders. To help investors efficiently deploy these structural opportunities, E Fund offers a complete matrix of pharmaceutical index products, including indices that represent the overall performance of the pharmaceutical markets in A-shares, Hong Kong stocks, and U.S. stocks, as well as sub-sectors like innovative drugs, biotech, and medical devices, to meet different risk preferences and allocation needs.

E Fund Pharmaceutical Product Line Layout

Data source: Wind, ETF scale data as of March 30, 2026; LOF scale data as of December 31, 2025

Comparison of Pharmaceutical Index Tools

Faced with many options, investors can understand the differences among various indices in the pharmaceutical product matrix from three dimensions:

1. Market differences: A-share listings have high thresholds, relatively stable profitability, and stock prices mainly reflect domestic industry policies and demand, with more stable trends; while Hong Kong stocks, due to the 18A listing rules, gather many unprofitable biotech and innovative drug companies, making them more sensitive to international liquidity, R&D progress, and export data, with greater elasticity and volatility.

2. Purity differences: The E Fund Hong Kong Innovation Drug ETF (159316) excludes CXO companies in its index, achieving 100% innovation drug purity, while the A-share Innovation Drug ETF (516080) and Hang Seng Biotech ETF include companies involved in other parts of the innovation drug industry chain, such as CXO.

3. Industry coverage differences: The pharmaceutical ETFs focused on comprehensive pharma and Hong Kong pharma indices are constructed based on market capitalization to cover various sub-sectors, with industry distribution mainly reflecting their target markets. Conversely, indices focused on specific tracks are more concentrated on their respective sub-sectors, as shown in the table below:

Data source: Wind, as of March 30, 2026

After clarifying the differences among various pharmaceutical indices, investors can “build blocks” step by step to construct investment portfolios aligned with their judgments (which market or sub-sector to be bullish on), enabling more efficient participation in long-term pharmaceutical industry investments. For example:

• Investors wishing to more purely invest in Hong Kong biotech companies and capture the value revaluation opportunities brought by subsequent innovation drug exports and clinical data readouts can focus on the Hong Kong Innovation Drug ETF (159316) as a core allocation tool.

• Investors aiming to grasp the marginal improvement in domestic CXO fundamentals can consider the Hong Kong Medical ETF, Hang Seng Biotech ETF, and CSI Innovation Drug ETF, which collectively cover innovative drug companies and CXO leaders in both A-shares and Hong Kong stocks.

• For those optimistic about steady growth and long-term logic of domestic medical devices and services, the pharmaceutical ETF provides a one-click way to layout core leaders in the sector.