Hong Kong Stock Connect-listed innovative drug stocks staged a powerful rebound during the morning session on July 8th. Leading shares such as Innovent Biologics and Akeso Inc. rose by 2.5%, while Sino Biopharmaceutical Limited surged by 6%. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880), an ETF focused exclusively on biotech R&D, opened higher and climbed as much as 3.2%, currently trading up 2.29% with turnover exceeding 2.5 billion yuan.

The Driving Force Behind the Rally

Catalyzing the move, the total value of overseas licensing deals for Chinese innovative drugs in the first half of 2026 reached a record $99.7 billion. This figure already represents 73% of the full-year 2025 total and nearly doubles the $52.2 billion recorded for all of 2024. Notably, Chinese pharmaceutical companies secured eight of the top ten global licensing deals during this period. A landmark $18.5 billion deal between CSPC Pharmaceutical Group and AstraZeneca stands as the second-largest single transaction in global history.

Analysts See a Fundamental Shift

Guojin Securities highlighted that this trend signals a paradigm shift where Chinese innovative assets are transitioning from being "optional" to "essential" for global players, with their valuation frameworks increasingly aligning with international standards. As major medical conferences like WCLC 2026 (September 12-15) and ESMO 2026 (October 23-27) approach, sectors such as bispecific antibodies and antibody-drug conjugates are expected to enter a period of密集 data readouts. The firm recommends focusing on biotech companies with potential for significant clinical data that have not yet been targeted by major multinational corporations, suggesting the window for business development deals could remain open in the second half of the year.

Huafu Securities concurred, stating that China's innovative drug sector is at the starting point of a new round of value re-rating and is poised to become one of the most growth-oriented and resilient core investment themes in global healthcare over the coming years.

Tools for Exposure to the Sector

For investors seeking to track this rebound, two key ETFs are highlighted. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) provides 100% exposure to companies engaged in innovative drug R&D. Its top ten holdings account for over 70% of the portfolio, emphasizing a concentrated, high-conviction approach in Hong Kong-listed assets known for high volatility and offering T+0 settlement.

The Pharmaceutical ETF (562050) is the sole ETF tracking the CSI Pharmaceutical Index, featuring a unique "75% innovative drugs + 25% traditional Chinese medicine" allocation. This structure aims to combine the high-growth potential of biotech with the income-generating characteristics of high-dividend TCM stocks.

Data is sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, as well as CSI Index Co., Ltd. and Hang Seng Indexes Company. Analyst views are derived from recent research reports.

It is noted that the mentioned ETFs do not charge a sales service fee. Brokerages may charge a commission of up to 0.5% for subscription or redemption of fund units, which includes fees levied by exchanges and registration institutions. Specific fund fee structures are detailed in their respective legal documents.

Important Risk Disclosures

Index constituents are shown for illustrative purposes only. Descriptions of individual stocks are not intended as investment advice of any kind and do not represent the holdings or trading activities of the fund manager. The fund manager assesses the risk rating of the Pharmaceutical ETF and its feeder fund as R3-Medium Risk, suitable for Balanced (C3) and higher risk-tolerance investors. The feeder fund for the Medical ETF, the Hong Kong Stock Connect Medical ETF and its feeder fund, and the Hong Kong Stock Connect Innovative Drug ETF and its feeder fund are assessed as R4-Medium-to-High Risk, suitable for Aggressive (C4) and higher risk-tolerance investors. All information presented is for reference only, and investors are solely responsible for their own investment decisions. The views, analyses, and forecasts herein do not constitute investment advice, and no liability is accepted for any direct or indirect losses resulting from the use of this content. The performance of other funds managed by the fund manager is not a guarantee of this fund's future performance. Past performance is not indicative of future results. Fund investment carries inherent risks.