On July 13th, the A-share market experienced a deep correction, with the Shanghai Composite Index falling 2.06% to close at 3913.79 points. The Hong Kong market saw initial gains followed by a retreat, with the Hang Seng Index edging up a mere 0.16%. AH innovative drug assets consolidated after a significant rally, showing notably divergent trends.
The A-share pharmaceutical sector fluctuated throughout the day. Against the backdrop of weakening innovative drug stocks, leading traditional Chinese medicine (TCM) companies played a pivotal role. Yunnan Baiyao Group Co., Ltd. rose nearly 2%, Pien Tze Huang surged 7.29%, Yiling Pharmaceutical gained 6.19%, and Dong-E E-Jiao Co., Ltd. increased by 4.15%.
The only on-market ETF tracking a pharmaceutical index, the Huabao Pharma ETF (562050), defied the broader market decline to close in positive territory, marking its third consecutive day of gains. Its intraday amplitude exceeded 2%, and trading was exceptionally active, with a single-day turnover of 562.7 million yuan setting a new all-time high record. The fund traded at a premium throughout the session, indicating strong buying interest. In the previous trading session (July 10th), it saw a substantial net inflow of 257.8 million yuan.
On the news front, the State Council has approved in principle the "15th Five-Year Plan for the Revitalization and Development of Traditional Chinese Medicine," outlining a top-level roadmap for the coordinated development of TCM in terms of healthcare services, industry, and culture over the next five years. Additionally, the newly revised National Essential Medicines List has been expanded for the first time in eight years, with the proportion of Chinese patent medicines increased to approximately 40%. The policy explicitly supports the development of ethnic medicines and innovative TCM drugs.
The Hong Kong Stock Connect innovative drug sector opened higher but closed lower today. The Huabao Hong Kong Stock Connect Innovative Drug ETF (520880), which invests 100% in innovative drug R&D targets, saw its on-market price close down 1.11%, with an intraday amplitude of 3.79% and a turnover of 7.1 billion yuan. Notably, the fund maintained a wide premium during its intraday decline, indicating particularly active buying pressure.
It is worth mentioning that last week, following a brief correction, the Hong Kong Stock Connect innovative drug sector resumed its upward trajectory. After a historic single-week surge of 16.4%, the 520880 ETF gained another 2.05%, successfully achieving consecutive weekly gains. On-market trading volume expanded significantly, with weekly turnover reaching 42.83 billion yuan, marking the second-highest level in its history.
Feng Chencheng, the fund manager of the Huabao Hong Kong Stock Connect Innovative Drug ETF (520880), pointed out that there have been no significant changes in the sector's fundamentals recently. This round of rebound might be attributed to funds rebalancing, where sectors like innovative drugs, which experienced sharp declines previously but maintain solid fundamentals, have become a "safe harbor" for capital seeking refuge (a "seesaw" effect with hard tech and non-tech laggard sectors).
Simultaneously, the US-China market correlation may be aiding the innovative drug counteroffensive. The US-listed XBI ETF (primarily composed of small and mid-cap biotech companies) has been on a continuous uptrend since June 11th, rising 27% over 19 trading days, outperforming the XLV ETF (large pharmaceutical companies). Catalytically, acquisitions of companies like NUVL (June 22nd) and APGE (June 9th) by major pharmaceutical firms for over $10 billion each have stimulated the share prices of US biotech companies, causing the biotech sector to significantly outperform the S&P 500 Equal Weight Index.
Domestic favorable policies are further catalyzing the market. The new National Essential Medicines List saw a 14.1% increase in the number of chemical drugs and biological products. There was a major breakthrough in the selection criteria for essential medicines, with several innovative drugs included in the list. In the oncology field, high-priced targeted drugs like osimertinib and olaparib were included. In the immunology field, biologics such as seplulimab (from Conmed) and telitacicept (from RemeGen) entered the list (and were included in the national reimbursement drug list within less than 8 years). In the metabolic field, semaglutide made its debut. Following this list adjustment, some innovative drugs are expected to gain volume expansion opportunities in the primary care market.
Looking ahead, can the Hong Kong Stock Connect innovative drug rally persist? Feng Chencheng believes that the sustainability of the innovative drug sector's performance requires the support of a major industry trend, which hinges on the global recognition of clinical data from innovative drug companies. In valuation models, overseas sales are a key component. Therefore, besides clinical data disclosures ahead of conferences like WCLC (September) and ESMO (October), a key industry event for the remainder of the year is the OS data from the global clinical trial of Kangfang's HARMi-3 study, which warrants close attention and tracking.
To follow the innovative drug counteroffensive, consider these two key investment instruments:
The Huabao Hong Kong Stock Connect Innovative Drug ETF (520880): 100% exposure to innovative drug R&D companies, with the top ten holdings accounting for over 70%, highlighting its leading characteristics. Its underlying assets are Hong Kong-listed stocks, offering high volatility and T+0 trading.
The Huabao Pharma ETF (562050): The only ETF in the entire market tracking a pharmaceutical index, featuring a unique allocation of "75% innovative drugs + 25% traditional Chinese medicine," combining the high growth potential of innovative drugs with the high dividend appeal of TCM.
Data sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, China Securities Index Co., Ltd., Hang Seng Indexes Company, and PharmCube.
Note: ETF funds do not charge sales service fees. When investors subscribe for or redeem fund units, subscription/redemption agents may charge a commission of up to 0.5%, which includes relevant fees charged by stock exchanges and registration institutions. Please refer to the legal documents of each fund for specific fee details.
Risk Disclosure: The index constituents mentioned herein are for illustrative purposes only. Descriptions of individual stocks do not constitute investment advice in any form, nor do they represent the holdings or trading activities of any fund managed by the asset manager. The asset manager assesses the risk rating of the Huabao Pharma ETF and its feeder fund as R3-Medium Risk, suitable for Balanced (C3) and above investors. The risk rating of the Huabao Hong Kong Stock Connect Innovative Drug ETF and its feeder fund is assessed as R4-Medium to High Risk, suitable for Aggressive (C4) and above investors. Any information appearing in this article (including but not limited to individual stocks, commentary, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors are solely responsible for any independent investment decisions. Furthermore, any views, analyses, or predictions in this article do not constitute investment advice of any kind to readers, and no liability is accepted for any direct or indirect losses arising from the use of this content. The performance of other funds managed by the asset manager does not guarantee the performance of the funds mentioned. Past performance of a fund is not indicative of its future results. Fund investment involves risks.
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