Summary of Key Points
In July 2026, the A-share market witnessed a contrast between the cooling of technology stocks and the surge in pharmaceutical stocks: Technology sectors such as semiconductors plummeted due to the realization of positive expectations (for example, the STAR 50 index fell by 4.25%), while the pharmaceutical sector (especially CXO companies) saw strong gains driven by rising prices for experimental monkeys and better-than-expected performance (Zhao Yan New Drug's profit forecast increased by 14 times), causing the Innovation Drug Index to rise by 4.46%. Funds flowed from the crowded technology sector to the less liquid pharmaceutical sector, creating a situation described as a "monkey market" – which refers both to the volatile market conditions and the booming demand for experimental monkeys. The core logic behind the pharmaceutical sector's performance is "performance validation," rather than previous speculation about future earnings. The sustainability of this trend depends on three key indicators: monkey prices, performance trends, and capital flow. Currently, it appears to be a phased rebound supported by fundamental factors.
I. Why such a contrast between technology and pharmaceutical stocks?
The decline in technology stocks is not due to poor performance but rather because expectations were overly optimistic:
- For instance, Changdian Technology reported a 63%-102% profit increase for the first half of the year, but its stock price had already risen by 165% from April to July, meaning the positive news was already reflected in the price. After the earnings were announced, there was no further buying interest.
- Demingli's profit forecast increased by 50 times, but due to a low base last year (a loss of 118 million yuan) and a 5%-30% decline in second-quarter profits, this was considered bad news by the market, leading to a limit-down.
The rise in pharmaceutical stocks is because expectations were too low:
- As of July 14th, the CXO/innovation drug sector had been trading sideways with little institutional buying. The sudden 14-fold profit increase from Zhao Yan New Drug (caused by rising monkey prices) was unexpected and未被 fully reflected in the stock price, resulting in a limit-up.
II. The "trigger" for the pharmaceutical market: What's behind the high price of experimental monkeys?
The claim that "a monkey costs 200,000 yuan" is not just a gimmick; it reflects a real imbalance between supply and demand:
- Supply: Monkeys have a low birth rate (one baby per litter), a long gestation period of 6 months, and take 3-4 years to reach maturity for experiments, making it difficult to increase the supply quickly.
- Demand: Innovative drug companies are eager to use monkeys because they share the closest genetic similarity with humans, leading to more accurate experimental results. Global pharmaceutical firms are competing for these animals, with demand growing by about 10% annually.
- Result: Monkey prices have doubled: From an average of 92,000 yuan in May 2025, they rose to 200,000 yuan in July 2026. Companies that stockpile monkeys (like Zhao Yan New Drug) saw a significant increase in asset value, while CXO companies (such as Medicsyn) faced higher costs and reduced margins.
III. Why the pharmaceutical sector can take over from technology: More than just monkeys...
While monkeys are the catalyst, there are three underlying reasons supporting the rise in pharmaceutical stocks:
1. Performance has shifted from speculation to solid evidence: Past pharmaceutical rebounds were based on assumptions about relaxed government procurement policies or Federal Reserve interest rate cuts. This time, the gains are based on actual financial results (Zhao Yan's 14-fold profit increase and innovation drug deals totaling nearly 110 billion US dollars).
2. Liquidity in the sector: The technology sector is highly liquid (TMT transactions account for over 50%), with 57.9 billion yuan in capital flowing out in one week. In contrast, the pharmaceutical sector has lower institutional investment, so price movements are less volatile.
3. Policy support: The government has designated biomedicine as a key industry and excludes patent-protected innovative drugs from government procurement programs. The integration of commercial and medical insurance policies has alleviated concerns about price cuts, improving market prospects.
IV. How long will this pharmaceutical trend last? Watch these three indicators:
The sustainability of the market depends on whether these three factors continue to support it:
1. Will monkey prices remain high? If prices continue to rise, companies that stockpile monkeys will benefit. However, if the entire sector experiences a general increase (including those that purchase monkeys externally), it may be driven by sentiment and could soon reverse.
- Zheshang Securities predicts a shortage of 15,000-20,000 monkeys annually from 2026 to 2028. Short-term price increases are likely, but excessive growth could lead to disagreement among investors.
2. Can performance continue to drive the market? July and August are peak periods for mid-year reports. If CXO companies like Kanglong Chemical and WuXi AppTec exceed expectations, or if innovative drug companies see revenue from overseas sales or deal payments, the trend will spread. Otherwise, it might be a limited phenomenon.
3. Will funds stay in the sector? Watch whether pharmaceutical ETFs continue to see net purchases, whether public funds reallocate to pharmaceutical stocks, and whether institutional investors maintain their buying interest. If technology stocks rebound significantly, funds may flow back, weakening the pharmaceutical sector's status as a safe haven.
V. Is this a market rebound or a major shift?
This is currently a phased rebalancing rather than the beginning of a major bull market:
- There is significant differentiation within the pharmaceutical sector: Only companies that stockpile monkeys and those with overseas revenue are performing well, while many others are still dealing with the impact of government procurement policies.
- Essentially, this is a temporary shift in investment as funds look for new opportunities in the less liquid pharmaceutical sector. For a trend to form, more pharmaceutical companies need to exceed expectations.
In summary, as long as the indicators of monkey prices, performance, and capital flow remain positive, the market will continue. However, any weakening of these factors could lead to a correction.
Disclaimer: This article does not constitute investment advice; investors should proceed with caution.