The three major A-share indices experienced a collective pullback today (July 15). At the close, the Shanghai Composite Index fell 0.29% to 3,955.58 points, the Shenzhen Component Index declined 0.97%, and the ChiNext Index dropped 1.21%. The combined turnover for the Shanghai and Shenzhen markets was 2.57 trillion yuan.

In terms of sector performance, A- and H-share pharmaceutical assets surged across the board. Popular on-market products like the Medical ETF Huabao (512170), Hong Kong Stock Connect Innovative Drug ETF Huabao (520880), Hong Kong Stock Connect Medical ETF Huabao (159137), and Pharmaceutical ETF Huabao (562050) all briefly surged over 5% intraday, with closing gains significantly outperforming the broader market. Baijiu stocks launched a collective strong offensive, with the Food and Beverage ETF Huabao (515710), which covers several baijiu leaders, seeing its on-market price close up over 4%. The real estate sector staged a strong rebound from oversold levels, with the Property ETF Huabao (159707), the only ETF in the market tracking the CSI 800 Real Estate Index, closing up 3.86%.

Key Market Observations

Datong Securities pointed out that the A-share market is showing a pattern of volatile adjustment; a wait-and-see approach might be prudent in the short term, awaiting market stabilization. For the medium to long term, opportunities may arise to accumulate positions in leading hard-tech companies with core competitiveness during dips, carefully selecting high-quality enterprises with genuine orders and profit realization capabilities.

Focus on Key Sectors

The following analysis focuses on the trading and fundamental conditions of several sectors, including A-H innovative drugs, food & beverage, and Hong Kong internet stocks.

Innovative Drug Sector Surges

The A-H pharmaceutical asset class erupted. The Hong Kong Stock Connect Innovative Drug ETF Huabao (520880), comprising 100% innovative drug R&D targets, demonstrated high elasticity, hitting an intraday high of 6.35% before closing up 3.81%. Its intraday amplitude reached 6.5%, with turnover swelling to 11.55 billion yuan.

IMMUNOTECH-B led gains, rising 17.84%. Stocks like BioAtla and Insilico Medicine rose over 10%, while leading weighted stocks collectively advanced strongly, with Akeso Biopharma, Innovent Biologics, and Kelun-Bota Biopharma all rising over 7%.

The A-share pharmaceutical sector advanced in sync. The innovative drug concept surged impressively. The impact of Dizal Pharmaceutical's $600 million upfront BD deal continued, leading to a rapid 20% limit-up at the open! Borui Pharmaceutical followed with a 20% limit-up. Weighted stock Jiangsu Hengrui Pharmaceuticals rose 4.89%, and Allist Pharmaceuticals gained 6.15%.

The Pharmaceutical ETF Huabao (562050), the only on-market ETF tracking the pharmaceutical index, rose nearly 5% intraday to break above its annual moving average, closing up 2.94% for its fifth consecutive gain. Its full-day amplitude reached 6.39%, with turnover hitting 50.93 million yuan, its second-highest historical level.

This round of innovative drug rebound started in late June, forming a distinct "V" shape on the daily chart. Key catalysts include recent favorable developments in policy, overseas licensing, and earnings.

Firstly, policy support is evident. The recent release of the "National Essential Drug List (2026 Edition)" marks a major breakthrough in selection criteria, with 16 innovative drugs included on a large scale for the first time, reflecting policy support for high clinical-value innovative varieties.

Secondly, overseas licensing is booming. In the first half of 2026, China's innovative drug out-licensing deals totaled 81 transactions worth approximately $110 billion, already reaching 80% of the full-year 2025 total, a record high for the period.

Thirdly, earnings are materializing. Leading domestic pharmaceutical companies are forming a positive cycle of "high R&D investment - rich pipeline - product commercialization - reinvestment in R&D." The proportion of innovative drug revenue is steadily increasing, with the industry's overall profit elasticity continuing to be released.

Additionally, capital rotation may be adding fuel to the innovative drug rally. The fund manager for the Hong Kong Stock Connect Innovative Drug ETF Huabao (520880) noted that this rebound might be driven by capital rebalancing, where sectors like innovative drugs, which previously fell sharply but have continuously improving fundamentals, have become a "safe harbor" for funds seeking refuge.

Guojin Securities also believes that the Hong Kong Stock Connect innovative drug sector, previously suppressed by overseas liquidity concerns, has seen valuations fall to relatively low levels. They remain optimistic about potential valuation repair opportunities for the overall Hong Kong-listed innovative drug sector driven by structural capital shifts.

Food and Beverage Sector Rallies

The food and beverage sector mounted a strong counter-trend offensive. The Food and Beverage ETF Huabao (515710), reflecting the overall trend of the sector, quickly rose after opening and maintained high-level volatility, closing with its on-market price up 4.03%.

Among its constituents, baijiu stocks rallied collectively. At the close, Anhui Gujing Distillery hit the limit-up, while Luzhou Laojiao and Shanxi Xinghuacun Fen Wine Factory both rose over 7%. Other baijiu leaders like Kweichow Moutai, Wuliangye, and Yanghe Brewery also performed strongly.

On the news front, on July 13, the State Council officially approved and released the "15th Five-Year Plan for Expanding Consumption." This is China's first national-level top-level plan targeting the consumption sector, with profound policy significance.

Kaiyuan Securities noted that past consumption promotion policies often focused on specific areas like appliance subsidies, dining vouchers, or holiday consumption stimulus. This plan moves beyond traditional stimulus thinking, making enhancing residents' consumption capacity its core focus, aiming to repair consumer confidence by boosting income levels and stabilizing livelihood expectations. Food and beverage, as a key category of household consumption expenditure, will directly benefit, with the industry's medium-to-long-term growth logic receiving solid support at the national strategic level.

From a valuation perspective, the sector remains at relatively low levels. Data shows that as of yesterday's close (July 14), the price-to-earnings ratio of the CSI Food & Beverage Sub-Index, tracked by the Food and Beverage ETF Huabao (515710), was 19.1 times, near the 1.96th percentile over the past decade, highlighting its medium-to-long-term allocation appeal.

Looking ahead, Dongxing Securities pointed out that against the backdrop of intensified consumption promotion policies, leading companies with growth potential and valuation advantages are expected to see valuation repair. They suggest focusing on food and beverage leaders with high dividends, low debt, and stable operating cash flows, particularly in sectors with improving fundamentals like frozen food, condiments, and snacks.

Hong Kong Internet Sector Gains Momentum

Oversold and lagging sectors collectively rose, with Hong Kong internet leaders strengthening again. Meituan-W rose over 5%, Tencent Holdings gained nearly 4%, while Alibaba-W and Kuaishou-W rose over 2%. The Hong Kong Internet ETF Huabao (513770), heavily invested in internet leaders, saw its on-market price rise over 3% intraday before closing up 1.97%.

Since hitting a recent low on June 26, the Hong Kong internet sector has rebounded continuously, accompanied by noticeable capital inflows. Exchange data shows the Hong Kong Internet ETF Huabao (513770) recorded net inflows exceeding 293 million yuan over the past five days.

Analysis suggests this rally results from multiple factors converging: shifting global liquidity expectations, southbound capital returning, and improving fundamentals for internet leaders. The sector may be transitioning from a bottom of "sentiment freeze" into a repair window of "earnings and valuation double boost."

Externally, the latest US inflation data showed the June CPI month-on-month decline was lower than market expectations, further weakening expectations for Fed rate hikes. Coupled with increased volatility in global AI hardware, some funds are shifting to Hong Kong-listed internet companies seeking valuation opportunities.

Industrially, improving fundamentals for internet leaders are driving revaluation expectations. Alibaba's preview for Q1 FY2027 comprehensively exceeded expectations, with Taobao Deals reducing losses faster than anticipated and Alibaba Cloud revenue growth accelerating to around 45%, refocusing market attention on the AI narrative.

Southbound capital has significantly increased buying recently, with another net purchase exceeding 10 billion yuan today, bringing the total for the first two days of this week to over 20 billion HKD. Just last week (July 6-10), southbound net purchases reached 39.055 billion HKD, the highest since April.

China Merchants Securities stated the recent strong rebound in the Hong Kong market was primarily catalyzed by Alibaba's earnings preview. Further upward momentum may come from upward revisions to overall Hong Kong market earnings and increasing AI revenue contributions from leading large tech companies, awaiting verification from upcoming semi-annual reports.

Galaxy Securities noted the recent Hong Kong stock rebound results from the combined effect of southbound capital's full-force buying and weakening foreign selling pressure. Southbound capital is concentrating inflows into AI/internet leaders, indicating an "averaging down" strategy betting on the long-term logic of China's AI industry, also confirming a domestic capital rotation from hardware to software and from high- to low-valuation sectors.