The Hong Kong stock market's healthcare sector continued its strong advance on July 3rd. The Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection Trading Open Ended Index Securities Inves (ETF) (520880), which is 100% focused on innovative drug R&D, and the Huabao Hong Kong Stock Connect Healthcare ETF (159137), which has over 50% exposure to CXO (Contract Research, Development, and Manufacturing Organizations), both surged more than 4%, securing their third consecutive day of gains.
The Hong Kong Stock Connect innovative drug segment opened higher and extended gains, led by a 9.68% jump in Remegen Co., Ltd. (HKG: 9995). Heavyweight leaders including Shijiazhuang Yiling Pharmaceutical Co., Ltd. (SZSE: 002603), CanSino Biologics Inc. (HKG: 6185), and 3SBio Inc. (HKG: 1530) collectively posted significant increases. The Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection Trading Open Ended Index Securities Inves ETF (520880) rose 4.76%, closing at the day's high. For the week, its on-market price accumulated a gain of 16.4%, significantly outperforming the Hang Seng Index's 2.99% rise.
The Hong Kong Stock Connect healthcare theme sector strengthened in tandem, with broad gains across CXO, innovative drugs, medical devices, and internet healthcare. MicroPort MedBot Corp Ltd (HKG: 2252) and Asymchem Laboratories Tianjin Co., Ltd. (SZSE: 002821) surged 16.05% and 11.46%, respectively, while WuXi Biologics (Cayman) Inc. (HKG: 2269) and JD Health International Inc. (HKG: 6618) rose strongly by 4.74% and 5.68%. The Huabao Hong Kong Stock Connect Healthcare ETF (159137) climbed as much as 5% in the afternoon session, closing up 4.45%. It posted a cumulative weekly gain of 11.77%, successfully achieving consecutive positive weekly closes.
Key Developments and Catalysts
On the news front, the 12th batch of the national drug procurement program explicitly included only mature generic drugs, with innovative drugs within their patent period excluded from the centralized procurement. This indicates a shift in industry policy positioning from cost control and price reduction towards supporting excellence and strengthening the sector. Furthermore, the two-tier payment system of "basic medical insurance for basic needs, commercial insurance supplementing high-end needs" has recently entered a substantive implementation phase, accompanied by new mechanisms such as a preliminary declaration system and an 8-year price protection period.
Another positive development emerged in innovative drug business development (BD). Shijiazhuang Yiling Pharmaceutical Co., Ltd. (SZSE: 002603) entered into a strategic collaboration with AstraZeneca for a novel small interfering RNA drug, entitling it to receive potential milestone payments totaling up to $1.74 billion. According to statistics from China International Capital Corporation (CICC), as of June 10, 2026, the total value of China's pharmaceutical BD deals reached $95.6 billion, accounting for 62.4% of the global total.
Assessing the Market Shift
Taking a longer-term view, Hong Kong healthcare stocks had been trending lower with volatility throughout the year. As recently as June 22nd, the on-market prices of both the Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection Trading Open Ended Index Securities Inves ETF (520880) and the Huabao Hong Kong Stock Connect Healthcare ETF (159137) hit new all-time lows. However, the situation reversed dramatically this week. Has a turning point arrived?
Guotai Haitong Securities noted that in the recent period, the fundamentals of the innovative drug sector had diverged from its stock price performance, with valuations remaining at low levels. Since June, numerous listed companies have intensively initiated share buybacks or increased holdings, highlighting signals of a potential sector bottom. Dongbei Securities believes that with multiple fundamentals aligning, the innovative drug sector may be stabilizing and beginning a recovery from its bottom. The window for a revaluation of core Hong Kong Stock Connect innovative drug leaders may have arrived, with ample room for valuation upward revisions.
Zhongtai Securities also holds the view that, after the short-term negative impact of anti-corruption policies and pessimistic expectations have been fully priced in, the healthcare sector is expected to become a key area of focus for high-position funds seeking undervalued, policy-supported, and oversold defensive growth sectors. Strategically, they recommend continuously allocating to the two high-certainty main themes of innovative drugs and their industrial chain, while also paying attention to thematic rotations and second-quarter earnings surprises.
Investment Vehicles for the Recovery
To capture the rebound opportunity in Hong Kong Stock Connect healthcare, investors may consider these two T+0 trading instruments:
For pure exposure to innovative drugs, the Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection Trading Open Ended Index Securities Inves ETF (520880) targets 100% innovative drug R&D companies, with over 70% of its holdings concentrated in leading innovative drug firms and excludes CXO.
For a combined strategy of "Innovative Drugs + CXO," the Huabao Hong Kong Stock Connect Healthcare ETF (159137) offers a mix of approximately 50% CXO and 20% innovative drugs, with the remaining 30% allocated to leading medical device and AI healthcare stocks.
Data sources include the Shanghai, Shenzhen, and Hong Kong stock exchanges, China Securities Index Co., Ltd., and Hang Seng Indexes Company. Institutional views are sourced from the following reports: Dongbei Securities' "Healthcare Industry Weekly Report: Focus on Layout of Innovative Drug and Device Industry Chain, Valuation Inflection Point Has Arrived" dated June 29, 2026; Guotai Haitong Securities' "Bullish on the Innovative Drug Industry: Positive Industry Trends, Bottoming Signals Emerging" dated July 2, 2026; and Zhongtai Securities' "Pharmaceutical and Biotechnology Industry July Monthly Report" dated July 2, 2026.
Note: The ETFs do not charge sales service fees. When subscribing for or redeeming fund shares, subscription/redemption agents may charge a commission of up to 0.5%, which includes related fees charged by stock exchanges and registration institutions. Detailed fund fee structures are available in the respective fund legal documents.
Risk Disclosure: Constituent stocks mentioned are for illustrative purposes only. Descriptions of individual stocks do not constitute investment advice in any form and do not represent the holdings information or trading trends of any fund managed by the asset manager. The fund manager assesses the risk rating of the Huabao Hong Kong Stock Connect Healthcare ETF and its feeder fund, as well as the Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection Trading Open Ended Index Securities Inves ETF and its feeder fund, as R4 - Medium to High Risk, suitable for aggressive (C4) and above investors. Any information presented herein (including but not limited to individual stocks, commentary, forecasts, charts, indicators, theories, or any form of expression) is for reference only. Investors are solely responsible for any independent investment decisions. Furthermore, any views, analyses, or predictions 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 fund performance is not indicative of future results. Fund investment carries risks.
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