On May 20, the A-H innovative drug sector declined once again. The on-market prices of Pharma ETF Huabao (562050), heavily invested in A-share innovative drug stocks, and the 100% innovative drug R&D-focused Hong Kong Connect Innovative Drug ETF Huabao (520880), both hit new historical lows.
The A-share pharmaceutical sector saw widespread declines. Hengrui Pharmaceuticals, a core constituent of Pharma ETF Huabao (562050), saw its share price hit a nearly one-year low, while East China Medicine and Changchun High-Tech fell by over 1%.
The leading weight stocks of the Hong Kong Connect innovative drug sector were mostly down. BeiGene rose over 1%, while Innovent Biologics, CSPC Pharmaceutical Group, and Sino Biopharmaceutical all fell by more than 1%. The Hong Kong Connect Innovative Drug ETF Huabao (520880) dropped over 1.5%, continuing to trade at a premium.
Amid the successive new lows in on-market prices, fund 520880 has seen concentrated capital inflows. As of the previous trading day, the fund recorded net inflows on 9 out of the last 10 days, totaling over 770 million yuan. Its latest fund share size has risen to a new high of 5.89 billion shares.
From the perspective of this adjustment cycle, the Hong Kong Connect innovative drug sector may have reached a level of attractive valuation. Since entering a phase of adjustment in mid-September last year, as of May 19, the underlying index of the Hong Kong Connect Innovative Drug ETF Huabao (520880) has accumulated a decline of over 30%, indicating a full adjustment with significant release of valuation risk.
Note: The annual historical returns of the Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index from 2021 to 2025 were: -22.72%, -16.48%, -19.76%, -14.16%, and 66.32% respectively. Past performance does not indicate future results.
Analysis suggests the industry is expected to bottom out and recover in the first half of 2026, with innovative drugs entering a period of profit realization. Growth is expected to be driven by both domestic commercialization and overseas licensing, with several companies expected to turn losses into profits. The long-term industrial trend for innovative drugs is clear, with three core drivers—business development for overseas markets, medical insurance support, and clinical breakthroughs—continuing to strengthen, providing ample room for sector valuation recovery.
For investing in core innovative drug assets during market dips, consider these two primary tools: For a pure play on innovative drugs, consider the Hong Kong Connect Innovative Drug ETF Huabao (520880). It provides 100% exposure to innovative drug R&D companies, with its top ten holdings accounting for over 70% of the portfolio, highlighting its focus on industry leaders. Its underlying assets are Hong Kong-listed stocks, offering high volatility and T+0 trading. For investors seeking to reduce volatility, the on-market exclusive Pharma ETF Huabao (562050) offers a unique allocation of "70% innovative drugs + 30% traditional Chinese medicine," a rare combination in the market that blends the high growth potential of innovative drugs with the high dividend yield of traditional Chinese medicine stocks.
Note on "the on-market exclusive Pharma ETF Huabao (562050)": According to data from the Shanghai and Shenzhen Stock Exchanges, as of the current date, Pharma ETF Huabao is the only ETF in the market tracking the CSI Pharmaceutical Index.
Note: ETF funds do not charge sales service fees. When investors subscribe for or redeem fund shares, subscription and redemption agents may charge a commission of up to 0.5%, which includes related fees charged by stock exchanges and registration institutions. Please refer to the legal documents of each fund for specific fund fee rates.
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 holding information or trading动向 of any fund managed by the fund manager. The fund manager assesses the risk level of Pharma ETF Huabao and its feeder fund as R3-Medium Risk, suitable for Balanced (C3) investors and above. The risk level of the Hong Kong Connect Innovative Drug ETF Huabao and its feeder fund is assessed as R4-Medium to High Risk, suitable for Aggressive (C4) investors and above. 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 responsible for any independent investment decisions. Furthermore, any views, analysis, or forecasts in this article do not constitute investment advice of any form 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 fund manager does not guarantee the performance of this fund. Past performance of a fund does not indicate its future results. Fund investment carries risks.
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