The healthcare sector in both A-shares and H-shares saw a broad-based rally on July 10th, with related ETFs posting significant gains. The catalyst was the official release of the "National Essential Medicines List (2026 Edition)" by the National Health Commission, the National Administration of Traditional Chinese Medicine, and the National Disease Control and Prevention Administration, which will take effect from September 1, 2026.
This marks the fourth revision of the list since the new healthcare reform began, following updates in 2009, 2012, and 2018. The new edition expands the list to 794 drugs, comprising 476 chemical and biological products and 318 traditional Chinese medicines. It includes 68 new chemical/biological drugs and 48 new traditional Chinese medicines, with 16 innovative drugs making their first large-scale entry into the list.
Driven by this news, innovative drug stocks in both A and H markets surged. The Huabao Pharmaceutical ETF (562050), heavily weighted in A-share innovative drugs, and the fully H-share focused Huabao Hong Kong Stock Connect Innovative Drug ETF (520880) both jumped over 3%. Among individual stocks, A-share companies Salubris Pharmaceuticals Co., Ltd. and 3SBio Inc. led gains, rising over 7%, while H-share company Duality Biologics-B soared over 10%. CSPC Pharmaceutical Group Limited and Akeso, Inc. also advanced strongly, gaining over 5%.
Analysts point out that as the global competitiveness of domestic innovative drug pipelines continues to improve, coupled with supportive medical insurance policies and commercial insurance tilting towards innovative drugs, many companies in the sector are expected to enter a period of sustained earnings growth. Against a backdrop of strengthening global interest in innovative drug assets, the current Chinese innovative drug sector presents a divergence between improving fundamentals and depressed valuations, potentially offering high-elasticity bottom-fishing investment value.
The broader AH healthcare sector also mounted a strong offensive. The largest healthcare ETF by size, Huabao Healthcare ETF (512170), and the T+0 tradable Huabao Hong Kong Stock Connect Healthcare ETF (159137) both surged over 4% intraday. The CXO segment led the charge, with Joinn Laboratories (China) Co., Ltd.'s A-shares hitting the daily limit-up and its H-shares rising over 14%. Pharmaron Beijing Co., Ltd. saw both its A and H shares climb over 10%.
With the mid-year reporting season approaching, analysts highlight the strategic allocation value of the CXO sector for the full year, citing three key reasons. Firstly, there is solid performance and order visibility; leading CDMOs are expected to maintain good performance in Q2 with favorable order trends, while domestic demand for CXO services shows strong order growth with improving pricing and gross margins. Secondly, there are positive catalysts; oral GLP-1 molecules are expected to generate robust order demand. Looking ahead, strong demand for new molecules like Pan-RAS, triple-target, Amylin, cyclic peptides, bispecific/multispecific antibodies, and small nucleic acids is likely to sustain upward momentum for the industry. Thirdly, valuations are attractive; most companies are trading at a 2026 PEG ratio below 1x, with WuXi AppTec Co., Ltd. trading at less than 15 times its 2026 earnings estimates.
All ETFs mentioned do not charge sales service fees. Detailed fund fee structures are available in the respective legal fund documents. Investors should be aware that the risk rating for the Huabao Healthcare ETF Link Fund, the Huabao Hong Kong Stock Connect Healthcare ETF and its Link Fund, and the Huabao Hong Kong Stock Connect Innovative Drug ETF and its Link Fund is R4 (Medium-High Risk), suitable for Aggressive (C4) or higher risk-tolerance investors. The risk rating for the Huabao Healthcare ETF, the Huabao Pharmaceutical ETF, and their Link Funds is R3 (Medium Risk), suitable for Balanced (C3) or higher risk-tolerance investors. Any investment decision should be based on independent judgment, and past performance is not indicative of future results. Fund investments carry risks.
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