On April 3, A-shares opened higher but closed lower, with the Shanghai Composite Index falling another 1% to drop below the 3900-point mark again. The recently popular pharmaceuticals sector unexpectedly underwent an adjustment. The largest medical ETF by market size, HUABAO Medical ETF (512170), closed down 2.65%, falling below its 20-day moving average. The sole pharmaceuticals-focused ETF, HUABAO Pharmaceuticals ETF (562050), fell 1.45%, halting a two-day winning streak. The Hong Kong market was closed for the Good Friday holiday. The trading prices of HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) and HUABAO Hong Kong Stock Connect Medical ETF (159137) in the A-share market were determined purely by capital flows, with both declining approximately 1% today.
What caused the sudden reversal in the pharmaceuticals sector? On April 2, US Eastern Time, the White House formally announced a 100% tariff hike on imported patented drugs and pharmaceutical ingredients. This move aims to pressure pharmaceutical companies through tariffs to either relocate production back to the US or accept pricing agreements. This news garnered significant market attention. Occurring on the last trading day before the Qingming Festival holiday, concerns escalated alongside a decline in market risk appetite, leading some investors to sell off pharmaceutical assets. Returning to rationality, how significant is the impact of this US action on China's pharmaceutical sector? The initial conclusion is that the direct impact is limited. Analyzing the export structure of Chinese pharmaceutical companies to the US reveals that it currently consists mainly of active pharmaceutical ingredients (APIs) and generic drugs, rather than patented drugs. According to data from the China Chamber of Commerce for Import & Export of Medicines & Health Products, of the total $19.047 billion in Chinese pharmaceutical product exports to the US in 2024, API exports accounted for $4.52 billion, representing 70.35% of western medicine exports. These products are not subject to the new tariff increases. Focusing on the innovative drug industry chain, the primary model for Chinese innovative drug companies expanding overseas is technology licensing (License-out), which does not involve the physical export of drugs, thus naturally avoiding tariff barriers. Domestic CXO (Contract X Organization) companies mainly supply intermediates and APIs, not finished patented drugs. Analysis suggests that the policy's actual impact on China's pharmaceutical industry chain is limited. Conversely, it may accelerate the restructuring of the global supply chain, benefiting CXO companies with global production capacity layouts and innovative drug firms that rely primarily on business development (BD) transactions for overseas expansion. GUOTAI HAITONG Securities explicitly expressed optimism regarding the overseas prospects for Chinese innovative drugs, stating that the tariff hikes have limited impact on potential BD transactions and continues to recommend innovative drugs and the innovative drug industry chain. In the secondary market, supported by an accelerating fundamental recovery, the A-share and H-share pharmaceutical sectors have recently frequently outperformed the broader market. A combination of multiple positive factors—leading companies returning to profitability, a surge in overseas expansion, and policy meeting catalysts—has led to particularly strong performance for innovative drugs. On April 1, HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880), which invests 100% in innovative drug R&D targets, surged nearly 7% in a single day, marking its largest single-day gain on record. This week, the 520880 ETF accumulated a gain of 6.63%, logging consecutive weekly gains and significantly outperforming the Hang Seng Index (which rose 0.66%). Its weekly turnover reached 3.503 billion yuan, the second-highest since its listing. Looking at the weekly chart pattern, a V-shaped recovery is beginning to appear, suggesting a potential turning point in its market trend.
Market analysis suggests that, based on industrial trend logic and market reaction, innovative drugs/pharmaceuticals are expected to become the strongest thematic trend in the broader market for April. ZHONGTAI Pharmaceuticals advised investors to actively seize the opportunity presented by the rebound in innovative drug stocks from their bottom. For investing in innovative drugs, consider HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880), which offers 100% exposure to companies focused on innovative drug R&D, with its top ten holdings accounting for over 70% of the portfolio, highlighting its concentration in leading players. For investors seeking lower volatility, HUABAO Pharmaceuticals ETF (562050) offers a unique allocation of "70% innovative drugs + 30% traditional Chinese medicine (TCM)", combining the high growth potential of innovative drugs with the high dividend yield of TCM. For investing in the broader healthcare sector, consider the largest medical ETF by market size, HUABAO Medical ETF (512170), which has significant holdings in medical services (including CXO) and medical devices, while also covering areas like medical aesthetics and AI healthcare. For a high-volatility instrument suitable for "T+0" trading strategies, consider HUABAO Hong Kong Stock Connect Medical ETF (159137), which has a CXO concentration exceeding 40% and covers hot themes like AI healthcare, brain-computer interfaces, and innovative drugs and devices.
Data sources: China Securities Index Co., Ltd., Shanghai, Shenzhen, and Hong Kong Stock Exchanges, etc. Note: ETF funds do not charge sales service fees. When investors subscribe for or redeem fund units, the subscription/redemption agent 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 detailed fee structures. Institutional viewpoints sourced from: GUOTAI HAITONG Securities report dated April 3, 2026, titled "US Announcement of 100% Tariff Hike on Imported Patented Drugs and Pharmaceutical Ingredients Has Limited Disruption on China's Innovative Drug Industry Chain"; ZHONGTAI Pharmaceuticals monthly report teleconference for April 2026. Risk提示: Constituent stocks shown are for illustrative purposes only. Descriptions of individual stocks are not intended as investment advice in any form and do not represent the holdings information or trading动向 of any fund managed by the manager. The fund manager assesses the risk rating of HUABAO Medical ETF, HUABAO Pharmaceuticals ETF, and their feeder funds as R3-Medium Risk, suitable for Balanced (C3) and higher risk profile investors. The risk rating of HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES and its feeder fund, HUABAO Hong Kong Stock Connect Medical ETF and its feeder fund, and the HUABAO Medical ETF feeder fund is assessed as R4-Medium to High Risk, suitable for Aggressive (C4) and higher risk profile investors. Any information appearing in this content is for reference only, and investors are responsible for any independent investment decisions. Furthermore, any views, analysis, or forecasts herein do not constitute investment advice of any kind to the reader, 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 fund manager does not guarantee the performance of these funds. Past performance of the funds is not indicative of their future performance. Fund investment carries risks.
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