On July 3rd, the Hong Kong Stock Connect healthcare sector continued its upward trajectory, with innovative drug stocks remaining the center of attention. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880), a pure-play ETF targeting innovative drug R&D companies, surged as much as 4.52% in early trading. The Hua Bao Hang Seng Hong Kong Stock Connect Healthcare ETF (159137), which has over a 45% weighting in CXO (contract research, development, and manufacturing) firms, climbed up to 3.21%.
Focusing on innovative drugs within the Stock Connect, leading weighted constituents rallied collectively. Innovent Biologics rose nearly 3%, while BeiGene, Akeso Inc., CSPC Pharmaceutical Group, and 3SBio Inc. all saw gains exceeding 5% at one point. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) opened higher and continued to gain, remaining up over 4% at the time of writing, with trading volume rapidly exceeding 2 billion yuan.
Catalysts for the Sector
The innovative drug sector has recently seen a series of positive developments, building strong momentum. Analysis from Northeast Securities suggests that multiple fundamental factors are aligning, potentially signaling that the sector has bottomed out and is poised for a rebound. The window for a re-rating of core Hong Kong Stock Connect innovative drug leaders may have arrived, with ample room for valuation upgrades.
On the policy front, the National Healthcare Security Administration released the preliminary review list for the 2026 National Reimbursement Drug List (NRDL) and commercial health insurance innovative drug catalog. Over 500 drugs passed the initial NRDL review, and 54 passed the commercial insurance review. This marks the substantive advancement of a dual-layer payment system, where "basic medical insurance covers the basics, and commercial insurance supplements high-end needs." New mechanisms such as a pre-submission system and an 8-year price protection period were also implemented, further refining the payment framework for innovative drugs.
From an industry perspective, as of June 26th, 166 A-share and H-share listed pharmaceutical companies have conducted share buybacks this year, totaling approximately 13.345 billion yuan. Intensive share repurchases by industry capital have historically been a significant confirmation signal of a market bottom.
Regarding capital flows, the current technology bull market is essentially a global one. Once it enters a consolidation phase, foreign capital from markets like Japan and South Korea, upon returning to Hong Kong stocks, is likely to prioritize allocation to the innovative drug sector.
Investment Vehicles for the Rally
To capture the rebound opportunity in Hong Kong Stock Connect healthcare, investors can consider two key T+0 instruments.
For a pure play on innovative drugs, the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880) is a focused choice. It excludes CXO companies, dedicating 100% of its portfolio to innovative drug R&D firms, with over 70% of its holdings concentrated in leading innovative drug companies.
For exposure to the broader innovative drug industry chain, including CXO, the Hua Bao Hang Seng Hong Kong Stock Connect Healthcare ETF (159137) is an option. With a "CXO content" exceeding 45%, it also covers leading stocks in areas such as innovative drugs, AI healthcare, and medical devices (including brain-computer interfaces).