On July 17th, both A-shares and Hong Kong stocks experienced a deep correction, with the Shanghai Composite Index falling 3% to close below the 3800-point mark, the ChiNext Index plummeting 7.15%, and the Hang Seng Index declining 1.78%. Amid the broad sell-off, the innovative drug assets, which had shown significant recovery recently, were not spared.

The Hong Kong Stock Connect innovative drug segment saw intense volatility, with seven stocks including OCUMENSION-B and IMMUNOTECH-B falling over 10%. The Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880), a pure-play on innovative drug R&D, saw an intraday swing of 7.83% and closed down 6.09%, marking its largest single-day decline since listing. However, the fund continued to trade at a premium in the secondary market, indicating active buying interest and suggesting potential capital inflows on the dip.

The A-share pharmaceutical sector, after six consecutive days of gains, saw a sharp reversal, with seven stocks dropping more than 10%. IMMUNOTECH-B led the decline, falling 15.51%, while heavyweight stocks like Kelun Pharmaceutical and Hisun Pharmaceutical hit limit-downs. The only ETF tracking the pharmaceutical index, Huabao Pharma ETF (562050), closed down 5.27%, also setting a historical record and ending its six-day winning streak.

What Triggered the Sell-off?

Market analysts point to external and internal factors. Externally, sharp volatility in overseas tech sectors directly transmitted pressure to A-shares. Internally, during the semi-annual earnings verification period, growth rates for some companies fell short of expectations, triggering concentrated profit-taking by capital, which further amplified the correction in high-valuation sectors.

Was the Sell-off in Innovative Drugs Unjustified?

The rebound in innovative drugs began in late June and had lasted for over half a month. The severe market-wide adjustment caused a sudden drop in risk appetite, likely prompting short-term capital to lock in profits collectively. However, the overall recovery trend for innovative drugs may not have fundamentally changed.

Weekly Performance Highlights Resilience

For the week, the Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880) accumulated a loss of 3.79% in the secondary market, with turnover reaching 4.365 billion yuan, the second-highest historical level, indicating sustained high interest through heavy volume. The A-share pharmaceutical sector demonstrated notable resilience. The Huabao Pharma ETF (562050) gained 0.41% for the week, significantly outperforming the broader market (the Shanghai Composite fell 5.81%), with weekly turnover hitting a record high of 204 million yuan.

Fundamental Support Remains

Fundamentally, positive interim earnings previews from some innovative drug companies validate the sector's robust growth momentum, which could support future price recovery. In Hong Kong, OCUMENSION-B forecasted a 274.48% to 305.73% year-on-year increase in H1 net profit, while IMMUNOTECH-B projected net profit growth exceeding 16-fold year-on-year.

In the A-share market, Hisun Pharmaceutical forecasted H1 net profit growth of up to 575% year-on-year, Huahai Pharmaceutical projected growth of up to 95%, while Hansoh Pharmaceutical and Allist Pharmaceuticals forecasted maximum growth exceeding 68% and 46%, respectively.

Outlook and Investment Tools

Looking ahead, analysts reiterate that innovative drugs represent a high-value, low-position growth asset outside the AI theme. The upward trend in the innovative drug industry's prosperity remains intact, characterized by the commercial scaling of core products, high activity in BD deals, and accelerated global commercialization of blockbuster drugs, suggesting a potential re-rating driven by fundamentals and industry momentum.

Key Investment Vehicles to Consider

For investors looking to accumulate core innovative drug assets on dips, two key ETFs are highlighted:

Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880): Offers 100% exposure to innovative drug R&D companies. Its top ten holdings account for over 70% of the portfolio, highlighting strong concentration in leading players. The underlying assets are Hong Kong-listed stocks, offering high volatility and T+0 trading.

Huabao Pharma ETF (562050): The only ETF tracking the pharmaceutical index in the market, featuring a unique allocation of "72% innovative drugs + 22% traditional Chinese medicine," combining the high growth potential of innovative drugs with the high dividend appeal of TCM.