On July 8th, A-share and H-share innovative drug stocks experienced a pattern of rising initially before falling back, with key ETFs focused on this sector closing in negative territory for consecutive sessions.
The A-share pharmaceutical sector saw a brief rebound at the market open. The sole ETF tracking the pharmaceutical index, HUABAO PHARMACEUTICAL ETF (562050), rose over 1% before reversing course to close down 1.78%, falling below its 10-day and 60-day moving averages. The intraday volatility exceeded 3%. Heavyweight leaders like Hengrui Pharmaceuticals and BeiGene fell more than 2%, while Salubris plummeted 7%.
Hong Kong Stock Connect innovative drug stocks also showed wide fluctuations. Leading companies such as Innovent Biologics, Akeso, and Hansoh Pharmaceutical initially surged collectively before quickly retreating and turning negative. Kelun-Botech Biopharma remained at low levels throughout the day, plunging 6.73% on heavy volume.
The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVESTMENT FUND (520880), which is 100% invested in innovative drug R&D targets, climbed 3.2% before sharply declining, ending the day down 0.92% with an amplitude of 4.35%. It recorded a substantial turnover of 741 million yuan. The frequent appearance of premiums in the secondary market suggests active buying interest.
Market analysis points out that volatility in overseas markets may be transmitting to and affecting risk appetite in the A and H markets, leading to a gradual increase in investor caution and a wait-and-see attitude. Regarding the innovative drug sector specifically, positive industry developments continue to emerge. Considering that the transmission from "expectation" to "financial statement" requires time, the current market may not have fully priced in medium to long-term industry improvements.
Key positive industry developments include business development activities. In the first half of the year, the total value of Chinese innovative drug out-licensing deals reached $99.7 billion, already 73% of the full-year 2025 figure, marking the strongest half-year performance on record. The industry widely anticipates that the total value of BD transactions for the full year 2026 could set another historical record. On the new drug front, a wave of domestic innovative drug approvals in late June has shifted expectations from the pipeline stage to the commercialization and sales ramp-up phase.
Regarding regulatory reviews, on July 3rd, the National Medical Products Administration released a draft for public comment proposing to include clinical trial reviews for Cell and Gene Therapy products in a 30-day fast-track process, effectively halving the clinical trial initiation cycle. This further compresses the timeline from R&D investment to commercial returns for subsequent innovative drugs.
Additionally, it is noteworthy that global capital may be reallocating towards biotech assets. Year-to-date, the overseas biotech ETF (XBI) has outperformed the technology ETF (XLK), reflecting a shift in market funds from a singular focus on AI towards innovative drugs with tangible industry delivery capabilities. Biotech is gradually becoming an important allocation direction for global growth assets.
One securities firm's view is that the overall valuation of the A-share and Hong Kong Stock Connect innovative drug sectors remains relatively low. A combination of global capital returning to the sector, continuous breakthroughs in internationalization, and an upward industry cycle are jointly driving a valuation recovery. The analysis suggests that Chinese innovative drugs may be at the starting point of a new round of value re-rating and could become the most growth-oriented and resilient core direction in global pharmaceutical investment in the coming years.
For investors looking to position for a potential rebound in innovative drug stocks, two key ETF instruments are highlighted. The first is the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVESTMENT FUND (520880), which provides 100% exposure to innovative drug R&D companies, with its top ten holdings accounting for over 70% of the portfolio, emphasizing a focus on leaders. Its underlying assets are Hong Kong-listed stocks, offering high volatility and T+0 settlement. The second is the HUABAO PHARMACEUTICAL ETF (562050), the only ETF in the market tracking the pharmaceutical index. It features 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 stocks.
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