On June 24th, the Hong Kong Stock Connect healthcare sector experienced a significant and long-awaited rally, with a strong counterattack across the innovative drug industry chain. CXO companies led the charge: Asymchem Laboratories surged by 13.12%, followed closely by Genscript Biotech which rose 11.5%. Key leaders in the WuXi AppTec group, including WuXi XDC, WuXi AppTec, and WuXi Biologics, closed up 8.88%, 8.33%, and 4.17% respectively.

The HUABAO HANG SENG HONG KONG STOCK CONNECT HEALTHCARE SELECTION TRADING OPEN ENDED INDEX SECURITIES INVESTMENT FUND (159137), with over 40% of its portfolio allocated to leading CXO companies, demonstrated high elasticity with an intraday peak gain of 5.44%. It closed up 4.35%, reclaiming both its 5-day and 10-day moving averages, and recorded a turnover of 65.31 million yuan, its highest in nearly four months.

Approaching Mid-Year Earnings Season

As the mid-year reporting season approaches, several institutions have highlighted investment opportunities in the CXO sector. Huafu Securities, for instance, explicitly emphasized the strategic allocation value of CXO stocks for the full year, providing three key rationales:

1) Strong Performance/Orders: Leading CDMOs are expected to maintain solid performance into the second quarter with favorable order trends. Domestic CXO orders are growing robustly, with prices and gross margins continuing to recover.

2) Catalysts on the Horizon: Oral GLP-1 molecules are anticipated to generate strong order demand. Looking ahead, robust demand for new molecules such as Pan-RAS, triple-target, Amylin, cyclic peptides, bispecific/multispecific antibodies, and small nucleic acids is likely to drive sustained industry growth.

3) Attractive Valuations: Most companies have a 2026 PEG ratio below 1x, with WuXi AppTec trading at a 2026 P/E ratio of less than 15x.

Innovative Drug Sector Also Rebounds

Turning to the Hong Kong Stock Connect innovative drug segment, a broad-based rebound was seen. HEC Pharm led gains, rising 12.5%, while Kelun-Biotech jumped 6.13%. Major weighted leaders including Innovent Biologics, BeiGene, and CSPC Pharmaceutical Group all closed higher.

The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVESTMENT FUND (520880), which invests exclusively in innovative drug R&D companies, climbed as much as 3.94% intraday, ultimately closing up 2.36%. Its trading volume surged to 669 million yuan, reaching a nearly two-month high.

Analysis suggests that with major medical conferences like ESMO and WCLC approaching in the third quarter, domestically developed innovative drugs are expected to regain global attention, with their clinical value likely to become more apparent. Furthermore, the realization of R&D value in the second half of the year is anticipated to further elevate the overall valuation benchmark. Many high-quality companies have already corrected close to previous lows, suggesting potential opportunities for strategic accumulation.

Key Instruments to Capture the Rebound

To actively capture opportunities in the Hong Kong Stock Connect healthcare rebound, investors may consider two key T+0 instruments:

For exposure to the innovative drug industry chain (CXO), the HUABAO HANG SENG HONG KONG STOCK CONNECT HEALTHCARE SELECTION TRADING OPEN ENDED INDEX SECURITIES INVESTMENT FUND (159137) is an option, with a current "CXO concentration" of 45.17%. It also provides exposure to leaders in innovative drugs, AI healthcare, and medical devices (including brain-computer interfaces).

For pure-play exposure to innovative drugs, the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVESTMENT FUND (520880) invests 100% in innovative drug R&D companies, excluding CXO firms. Its top ten holdings account for over 70% of the portfolio, highlighting its concentrated exposure to sector leaders.

Data sources: China Securities Index Co., Ltd., Shanghai, Shenzhen, and Hong Kong stock exchanges. Institutional views sourced from Huafu Securities report dated June 24, 2026.

Note: The mentioned ETFs do not charge sales service fees. Brokerage firms may charge a commission of up to 0.5% for subscriptions or redemptions, which includes fees levied by stock exchanges and registration institutions. Please refer to the respective fund legal documents for detailed fee structures.

Risk Disclosure: Constituent stocks shown are for illustrative purposes only. Descriptions of individual stocks do not constitute any form of investment advice and do not represent the holdings or trading activities of any fund managed by the asset manager. The fund manager assesses the risk rating of the mentioned Hong Kong Stock Connect Innovative Drug ETF and Healthcare ETF (and their feeder funds) as R4 (Medium-High Risk), suitable for aggressive (C4) and above investors. Any information appearing herein is for reference only. Investors are responsible for their own investment decisions. The views, analysis, and forecasts herein do not constitute investment advice 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 these funds. Past performance is not indicative of future results. Fund investment carries risks.