Pharmaceutical assets across A-shares and Hong Kong markets surged in Monday morning trading. Key exchange-traded funds, including the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880), Huabao Medical ETF (512170), Huabao Pharmaceutical ETF (562050), and Huabao Hong Kong Stock Connect Medical ETF (159137), saw gains of around 4%.
The Hong Kong Stock Connect innovative drug segment led the charge with strong gains from major constituents. Kelun-Bota soared over 11%, Kangfang Bio jumped more than 9%, while Innobio-B and Innovent Biologics rose over 6%. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880), which invests exclusively in innovative drug R&D companies, surged 4.48% with turnover exceeding 3.7 billion yuan.
The A-share pharmaceutical manufacturing sector also showed robust performance, with multiple innovative drug concept stocks rising over 10%. Dizal Pharmaceutical hit the 20% daily limit for two consecutive sessions, BrightGene Bio reached the 20% limit, and Haisco Pharmaceutical rose by the 10% limit. The Huabao Pharmaceutical ETF (562050), the only ETF tracking a pharmaceutical manufacturing index, gained nearly 4% intraday, breaking through its 200-day moving average.
Dizal Pharmaceutical announced a licensing agreement with AstraZeneca for its drug Suvozhe, securing a $600 million upfront payment and up to $900 million in potential milestone payments. At current exchange rates, the upfront payment is approximately 4.069 billion yuan, setting a new record for the highest upfront payment in an out-licensing deal for a domestically developed small-molecule targeted drug.
Latest data from the National Medical Products Administration reveals that from January to June this year, China's innovative drug sector completed 81 out-licensing deals with a total transaction value of approximately $110 billion. This figure already represents 80% of the total value for the full year 2025, marking a new historical high. Concurrently, the NMPA reported that 38 Class 1 innovative drugs were approved for market in the first half, with 11 featuring novel targets or mechanisms, all being domestically developed.
On the policy front, the new edition of the National Essential Medicines List was recently released after an eight-year interval, increasing the number of chemical drugs and biological products by 14.1%. The selection criteria saw significant breakthroughs, incorporating several innovative drugs. In oncology, high-priced targeted therapies like osimertinib and olaparib were included. In immunology, biologics such as SiPuQiBai Dan Kang and TaTaXiPu entered the list. In the metabolic field, semaglutide made its first appearance. The portfolio manager for the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) noted that this list adjustment will provide volume growth opportunities for some innovative drugs in primary healthcare markets.
Analysts suggest the current valuations for the A-share and Hong Kong Stock Connect innovative drug sectors remain relatively low. A confluence of factors, including global capital flows back into the sector, continuous internationalization breakthroughs, and improving industry fundamentals, is driving a valuation recovery. It is posited that China's innovative drug sector may be at the starting point of a new round of value reassessment, potentially becoming one of the most growth-oriented and resilient core investment themes in global healthcare over the coming years.
For investors seeking exposure to this rebound, two key instruments are highlighted.
The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) offers 100% exposure to innovative drug R&D companies. Its top ten holdings account for over 70% of the portfolio, reflecting strong concentration in leading players. Its underlying assets are Hong Kong-listed stocks, offering high volatility and T+0 settlement.
The Huabao Pharmaceutical ETF (562050) is the only ETF tracking a pharmaceutical manufacturing index. It features a unique "75% innovative drugs + 25% traditional Chinese medicine" allocation, combining the high growth potential of innovative drugs with the high dividend yield characteristic of TCM stocks.
Data is sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, as well as China Securities Index Co., Ltd., Hang Seng Indexes Company, and PharmCube. Institutional views are referenced from a research report dated July 5, 2024. ETF fund management fees do not include sales service charges. Brokerages may charge a commission not exceeding 0.5% for subscriptions or redemptions, which includes fees levied by exchanges and registration institutions. Specific fund fee structures are detailed in their respective legal documents.
Risk Disclosure: Index constituents are shown for illustrative purposes only. Descriptions of individual stocks do not constitute investment advice of any form nor represent the holdings or trading intentions of any fund managed by the asset manager. The risk rating for the Huabao Pharmaceutical ETF (562050) and its feeder fund is assessed as R3 (Medium Risk), suitable for Balanced (C3) and above investors. The risk rating for the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) and its feeder fund is R4 (Medium-High Risk), suitable for Aggressive (C4) and above investors. All information presented is for reference only. Investors are solely responsible for their independent investment decisions. The views, analyses, and forecasts herein do not constitute investment advice to any reader, and no liability is accepted for any direct or indirect losses arising from the use of this content. The past performance of other funds managed by the asset manager does not guarantee the performance of these funds. Past fund performance is not indicative of future results. Fund investment carries risks.
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