On July 2nd, the Hong Kong Stock Connect innovative drug sector erupted once more, leading the market in a strong advance. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ASX: 520880), which is fully invested in innovative drug R&D companies, opened higher and climbed sharply, soaring over 5% during the session.

Constituent stocks surged powerfully, with six stocks including Immunotech-B and others rising over 10%. Major weighted stock CSPC Pharmaceutical Group gained over 9%, while Akeso Inc. advanced more than 8%.

Key Factors Driving the Sector

Feng Chencheng, the fund manager for the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ASX: 520880), highlighted that from a medium-term perspective, innovative drug stocks at current levels possess significant potential for a rebound, as the global competitiveness of China's innovative drug industry continues to strengthen. Looking ahead, the innovative drug sector is supported by multiple factors including industry fundamentals, supportive policies, valuations, and potential catalysts, underpinning a solid investment thesis.

Firstly, the overseas expansion narrative continues, with progress entering a phase of tangible realization. Business development activities for Chinese innovative drugs are accelerating, and products that have already secured partnerships are moving into substantial overseas commercialization phases. Over the next few years, major domestic innovative drugs are expected to enter overseas markets for sales, potentially boosting peak sales forecasts and success rates, thereby expanding the overall sector's potential.

Secondly, domestic policy remains encouraging. The Government Work Report has identified biomedicine as an "emerging pillar industry," elevating the strategic importance of the pharmaceutical sector. The "Several Opinions on Improving the Drug Price Formation Mechanism" explicitly aims to optimize pricing mechanisms for first-to-market innovative drugs, supporting the high-quality development of the innovative drug industry.

Thirdly, innovative drug assets are generally undervalued at present. With a vast potential overseas market, many companies have the potential for their valuations to more than double from a medium-term perspective.

Fourthly, regarding catalysts, looking forward to the second half of the year, industry conferences, significant business development deals, quarterly earnings reports, and breakthroughs in new technologies are expected to provide ongoing positive momentum for the sector.

Investment Vehicles for Sector Exposure

For investors looking to position for a potential rebound in the innovative drug sector at current levels, two key investment tools are highlighted.

To gain pure exposure to innovative drug companies, the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ASX: 520880) offers a 100% focus on innovative drug R&D firms. Its top ten holdings account for over 70% of the portfolio, emphasizing a strong concentration in leading companies. The underlying assets are listed in Hong Kong, offering high volatility and T+0 trading.

For investors seeking to reduce portfolio volatility, the in-house exclusive HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ASX: 520880) offers a unique "75% innovative drugs + 25% traditional Chinese medicine" allocation, a rare combination in the market that blends the high growth potential of innovative drugs with the high dividend yield characteristic of traditional Chinese medicine stocks.

Data is sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, as well as China Securities Index Co., Ltd. and Hang Seng Indexes Company. Note: ETF funds do not charge sales service fees. When subscribing for or redeeming fund units, the subscription/redemption agent brokerage may charge a commission of up to 0.5%, which includes relevant fees charged by the stock exchange and registration institutions. Please refer to each fund's legal documents for specific fee details.

Risk Disclosure: The index constituents mentioned are for illustrative purposes only. Descriptions of individual stocks do not constitute investment advice in any form, nor do they represent the holdings or trading动向 of any funds managed by the fund manager. The fund manager assesses the risk rating of the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ASX: 520880) and its feeder funds as R3-Medium Risk, suitable for Balanced (C3) and above investors. The risk rating for the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ASX: 520880) and its feeder funds is R4-Medium to High Risk, suitable for Aggressive (C4) and above investors. Any information appearing in this article is for reference only. Investors must be responsible for any independent investment decisions. Furthermore, any views, analyses, or forecasts in this article do not constitute investment advice to readers and no responsibility 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 fund performance is not indicative of future results. Fund investment carries risks.

A MACD golden cross signal has formed, indicating positive momentum for these stocks.