On June 5th, both the A-share and Hong Kong stock markets continued their adjustment. The Shanghai Composite Index fell 0.74% to close at 4027.74 points, the ChiNext Index plunged 3.2%, and the Hang Seng Index dropped 1.15%, marking its third consecutive day of losses. Healthcare assets demonstrated notable resilience; despite pulling back from earlier highs, their overall performance was significantly better than the broader market.
The A-share medical sector initially showed short-term strength at the open but quickly retreated. The largest medical ETF in the market, Huabao Medical ETF (512170), briefly rose by 1% before ultimately closing down 0.33%, extending its losing streak to five days. Its fund flows have recently seen a counter-trend increase, with the 512170 accumulating a net inflow of 1.266 billion yuan over the past 10 trading days as of June 4th.
The pharmaceutical sector managed to stay in positive territory throughout the trading day. The only on-market ETF tracking the pharmaceutical index, Huabao Pharma ETF (562050), surged as much as 2.18% at one point before closing up 0.46% against the market trend, ending a four-day losing streak. Both innovative drug and traditional Chinese medicine constituent stocks contributed, with leading heavyweights like Jiangsu Hengrui Pharmaceuticals Co., Ltd. rising 0.97%, Zhejiang NHU Company Ltd. gaining 3.46%, Dong-E-E-Jiao Co., Ltd. advancing 2%, and Jichuan Pharmaceutical Group Co., Ltd. climbing 1.74%.
Hong Kong Connect healthcare stocks opened higher but closed lower. Healthcare-themed sectors experienced a significant rally and subsequent pullback. Huabao Hong Kong Connect Medical ETF (159137), driven early on by strong performance from WuXi-related CXO stocks, once rose as much as 2.82%. However, it turned negative in the afternoon, dragged down by innovative drug and AI healthcare stocks, closing down 0.13% with an intraday amplitude of 3.2%.
The decline in innovative drug stocks has not yet stopped. The pure-play innovative drug R&D ETF—Huabao Hong Kong Connect Innovative Drug ETF (520880)—reached an intraday high of 1.74% in the morning session before continuously trending lower, closing down 1.49% for its fifth consecutive daily loss, with its on-market price hitting a new historical low. The index was dragged down by sharp declines in core heavyweight leaders, with IMMUNOTECH-B (06978) plunging 5.88% and BeiGene, Ltd. falling nearly 3%.
Key Factors to Consider
It is worth noting that the Hong Kong Connect innovative drug sector has recently been accelerating its bottoming process, with leveraged funds beginning to enter. As of June 4th, the margin financing balance for Huabao Hong Kong Connect Innovative Drug ETF (520880) reached 105 million yuan, a record high. However, the exact bottom of the current market cycle is not yet clear, and the sector exhibits high volatility characteristics. Retail investors need to be vigilant about risks and avoid blindly going all-in to catch the bottom.
How should one view the current investment opportunities in the innovative drug sector? Analysis points out that the current market panic may represent an overreaction, as the fundamental industry logic remains solid:
1) Multinational corporations (MNCs) have a strong, inelastic demand for high-quality Chinese drug pipelines, and the logic for overseas expansion remains robust. In the first quarter of 2026 alone, the total value of out-licensing deals for domestic innovative drugs has already exceeded $60 billion.
2) Domestic policy has shifted towards supporting genuine innovation, explicitly optimizing the initial pricing mechanism and granting pricing autonomy to high-level innovative drugs.
3) The micro trading structure has been thoroughly cleared out. Public fund holdings in the healthcare sector have dropped from a peak of 14.5% in 2021 to a historical low of 8.4%, significantly limiting further downside and presenting favorable risk-reward odds.
Strategic Approach for Investors
Strategically, it is suggested to consider building positions in batches during declines within the current bottoming area. To mitigate the risk associated with a single pipeline failure or individual stock black swan events, utilizing ETF tools for a diversified, basket-style investment is preferable. Simultaneously, it is crucial to closely monitor key risk indicators such as the Federal Reserve's interest rate cut path, FDA legislative progress, and second-quarter hospital sales data, remaining vigilant against risks from both liquidity and earnings pressures.
For a pure play on innovative drugs, consider Huabao Hong Kong Connect Innovative Drug ETF (520880), which invests 100% in innovative drug R&D companies. Its top ten holdings account for over 70% of the portfolio, highlighting its focus on industry leaders. The underlying assets are Hong Kong-listed stocks, offering high elasticity and T+0 settlement.
For investors seeking to reduce volatility, the only on-market option is Huabao Pharma ETF (562050) with its unique allocation of "70% innovative drugs + 30% traditional Chinese medicine." This is a scarce offering in the market, combining the high growth potential of innovative drugs with the high dividend characteristics of traditional Chinese medicine stocks.
Data is sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, China Securities Index Co., Ltd., and Hang Seng Indexes Company. As of June 4, 2026, Huabao Medical ETF had an asset size of 25.708 billion yuan, making it the largest among all healthcare/pharmaceutical ETFs in the market (1/98).
Note: ETF funds do not charge sales service fees. When investors subscribe for or redeem fund units, the subscription/redemption agency broker may charge a commission of up to 0.5%, which includes relevant fees charged by the stock exchange, registrar, etc. Please refer to the legal documents of each fund for specific fee details.
Risk Disclosure: The index constituent stocks mentioned are for illustrative purposes only. Descriptions of individual stocks do not constitute investment advice in any form, nor do they represent the holdings information or trading动向 of any fund managed by the asset manager. The asset manager assesses the risk rating of Huabao Medical ETF, Huabao Pharma ETF, and their feeder funds as R3-Medium Risk, suitable for Balanced (C3) and above investors. The risk rating for Huabao Hong Kong Connect Medical ETF, Huabao Hong Kong Connect Innovative Drug ETF, and their feeder funds 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, any form of expression, etc.) is for reference only. Investors must be responsible for any independent investment decisions they make. Furthermore, any views, analysis, or predictions in this article do not constitute investment advice of any kind to the reader, and no responsibility is accepted for any direct or indirect losses arising from the use of this content. The performance of other funds managed by the fund manager does not guarantee the performance of this fund. Past performance of a fund is not indicative of its future results. Fund investment carries risks.
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