On June 22nd, the Shenwan Pharmaceutical & Biological Index and the Hang Seng Innovative Drug Index both hit new lows for the past year. Just one week later, on June 29th, the same sector experienced a powerful surge, leading the market. Shutaishen (300204.SZ) and Bairen Medical (688198.SH) rose over 20%, while Yaojie Ankang-B (2617.HK) soared nearly 40%. Pharmaceutical ETFs dominated the market's top gainers list, with the highest soaring 11.67%, and turnover doubled compared to the previous trading day. Taking a longer-term view, the innovative drug sector has been adjusting for nearly three quarters. Despite a historic profitability breakthrough in its fundamentals last year, the sector remained sluggish. As over 20 companies, including WuXi AppTec, announced share buyback plans, fund managers' portfolio adjustments were revealed. The extreme divergence, characterized by "you sell, I buy," reflects institutional judgments on different individual stocks.
From Narrative to Delivery
"The innovative drug sector is transitioning from 'talking about expectations' to 'looking at delivery,'" said Yu Sihui, fund manager of Rongtong Medical Innovation Selection Fund, to the media. She noted that the sector is still affected in the short term by risk appetite and style rotation. However, with fundamentals continuously strengthening and valuations having retreated from previous highs, innovative drugs have entered a stage of "strong fundamentals + high odds," presenting a favorable window for medium- to long-term positioning.
Innovative Drugs Stage a Full-Scale Rally
After recently hitting near one-year lows, the Shenwan Pharmaceutical & Biological Index and the Hang Seng Innovative Drug Index both led the market on Monday. Shutaishen (300204.SZ) and Bairen Medical (688198.SH) rose over 20%, while Yaojie Ankang-B (02617.HK) surged nearly 40%. Pharmaceutical ETFs dominated the market's top gainers list, with the highest soaring 11.67%, and turnover doubled compared to the previous trading day.
On June 29th, the pharmaceutical sectors in both A-shares and Hong Kong stocks erupted in a full-scale rally, with the innovative drug track particularly showing extreme strength, becoming one of the absolute main themes in both markets. Wind data shows that the Shenwan Pharmaceutical & Biological Index opened lower but quickly stabilized and rebounded, accelerating its upward move after 10 a.m. Although there was slight volatility in the afternoon, it maintained high levels throughout the day, ultimately surging 5.91% and leading all major market sectors.
Profit-making effects among individual stocks were widespread. Within the first half of the trading day, over 40 pharmaceutical and biological stocks had risen more than 10%, with the number of limit-up stocks continuously expanding. By the market close, a total of 55 stocks in the entire sector had gained over 10% for the day, with 29 stocks hitting the daily limit-up. Among them, nine stocks, including Shutaishen and Bairen Medical, surged over 20%, demonstrating strong short-term momentum.
The Hong Kong pharmaceutical sector also rallied strongly in sync. The top five performing thematic indices of the Hang Seng Index that day were all focused on the innovative drug track, with overall gains exceeding 7%. Specifically, the Hang Seng Innovative Drug Index (HSIDI.HI) led with a 7.74% gain. Yaojie Ankang-B rose 39.78%, while eight other stocks, including Yingen Biology-B (09606.HK) and Rongchang Biology (09995.HK), gained over 10%.
Among ETFs, the ChinaAMC SSE STAR Market Innovative Drug ETF surged 11.67%, and the Guotai SSE STAR Market Innovative Drug ETF rose 11.5%, leading all equity ETFs. Additionally, ETFs tracking medical device, healthcare, and traditional Chinese medicine sub-sectors also rose, achieving a comprehensive sector rally.
Data compiled by the media shows that among the 55 existing ETFs with data and whose tracked index names contain "医" (medical) or "药" (drug/pharmaceutical), the average gain on the 29th exceeded 6.5%. Concurrently, investor enthusiasm was high, with on-market trading activity significantly increasing. More than half of these ETFs saw their turnover double compared to the previous day.
Turnover data shows that the combined daily turnover for the 55 pharmaceutical ETFs exceeded 8.9 billion yuan, directly doubling from the previous session. In detail, 16 ETFs had daily turnover exceeding 100 million yuan. The Yinhua Innovative Drug ETF was the most active, with a daily turnover of 1.78 billion yuan, a 140% increase from the previous day. The GF Innovative Drug ETF and the E Fund Pharmaceutical ETF both saw daily turnover exceed 1.1 billion yuan.
This was not just a single-day influx of capital. Over the past month, the innovative drug track has seen continuous incremental fund inflows. Wind data statistics show that as of June 26th, nearly 70% of pharmaceutical-related ETFs saw contrarian capital inflows, with a combined net inflow exceeding 4.2 billion yuan. Among them, 11 products, including the Yinhua Innovative Drug ETF, attracted over 100 million yuan individually.
Taking the Yinhua Innovative Drug ETF as an example, it has seen consecutive net inflows over the past five trading days, with a cumulative net inflow of 711 million yuan over the past month and a staggering net inflow of 4.23 billion yuan year-to-date. The GF and E Fund innovative drug ETFs followed a similar trend, with sustained capital inflows and year-to-date net inflows both exceeding 1 billion yuan.
Divergence in Institutional Positioning
In fact, this is not the first rebound for the innovative drug sector recently. After hitting a high in the third quarter of last year, the sector fell into a sustained downward channel, with market attention fully diverted by concurrently surging tech sectors like AI and semiconductors. It wasn't until June this year that it gradually entered a consolidation phase.
Looking at a longer timeframe, the sector's adjustment has been significant. Data shows that as of June 29th, the Hang Seng Innovative Drug Index has cumulatively fallen over 33% since the fourth quarter of last year, touching a low of 2090.79 points on June 22nd, marking a near one-year low.
Against the backdrop of prolonged low valuations and market pressure, several listed pharmaceutical companies have taken action to support their share prices, using shareholding increases and buybacks to boost market confidence. According to incomplete statistics, since June, at least over 20 pharmaceutical companies have disclosed or initiated shareholding increase or buyback plans, with supportive actions intensifying.
For instance, WuXi AppTec announced on June 26th that it had completed the share buyback plan disclosed on June 11th, repurchasing approximately 9.7012 million A-shares for 1 billion yuan.
The media noted that as several listed companies updated their shareholder lists due to share buybacks and other matters, institutions' stealthy portfolio adjustments during the second quarter were also disclosed. It is evident that many fund managers' attitudes towards the pharmaceutical sector have shown clear divergence.
Puluo Pharmaceutical's non-reporting period announcement shows that the Dacheng Ruixiang Fund, managed by Dacheng Fund's Xu Yan, was reduced twice in Q2. Its holding decreased from 26.11 million shares at the end of Q1 to 23.76 million shares by June 11th, and further to 23.46 million shares by June 22nd, with a combined reduction of nearly 2.65 million shares.
Xinlita also faced continuous institutional selling. Data from June 1st shows that the well-known Zhongou Medical Health Fund, co-managed by Ge Lan, reduced its holding by 5.9888 million shares in Q2, continuing the trend of reductions from the previous two quarters. Another pharmaceutical fund manager, Zhao Bei, managing the ICBC Credit Suisse Frontier Medical Fund, also reduced holdings by 4.8 million shares.
It is worth noting that institutions have not entirely withdrawn from the pharmaceutical sector. Many fund managers, while reducing some holdings, have contrarily increased positions in high-quality innovative drug stocks whose valuations have fully adjusted.
Taking Baili Tianheng as an example, by June 1st, its stock price had fallen over 34% year-to-date. However, during the sector's adjustment in Q2, several top fund managers entered the market to increase their holdings. For instance, the Zhongou Medical Health Fund increased its holding by 548,100 shares. Funds managed by Zhang Wei, such as the ChinaAMC Innovative Medicine Fund, Qiao Qian's Xingquan Business Model Select Fund, and Xie Zhiyu's Xingquan Herun Fund, also increased their holdings to varying degrees.
Since disclosing its buyback plan after the market close on June 1st, Baili Tianheng's stock price began a volatile upward trend. As of June 29th, the stock has cumulatively gained nearly 40% since June 2nd, showing a very strong rebound momentum.
It is noteworthy that institutional divergence is particularly prominent at the individual stock level, with the same stock often witnessing opposing "increase vs. decrease" operations. Taking Tigermed as an example, funds managed by Qiao Qian, including the Xingquan Business Model Select Fund, Xingquan New Vision Fund, and Xingquan Herun Fund, all chose to increase holdings. In contrast, the Zhongou Medical Health Fund reduced its holdings twice within Q2, showing a clear divide in bullish and bearish attitudes.
Transitioning from Expectations to Deliverables
Behind the divergence in portfolio adjustments lies fund managers' re-evaluation of the innovative drug sector's positioning. "China's innovative drug sector is undergoing a critical transition from 'domestic substitution' to 'global participation,' and from 'valuation stories' to 'industrial delivery,'" said Yu Sihui. She believes that after more than half a year of adjustment, current valuations for innovative drugs have returned to a relatively reasonable range, with many individual stocks back to their early 2025 valuation levels or even lower. During this round of adjustment, industry fundamentals have not deteriorated but have instead continued to improve. This has created a divergence where "fundamentals are improving while stock prices are declining," setting the stage for subsequent recovery.
However, she also cautioned that this does not mean all innovative drug companies will rise, as internal differentiation within the sector will intensify. "In terms of allocation, we should shift from broad thematic investment to selecting high-quality assets, focusing on companies that truly possess global competitiveness, are supported by significant clinical data, and have strong commercialization capabilities," she said.
Huatai-PineBridge Fund manager Chen Kehan pointed out one easily overlooked misconception. She told the media that since the fourth quarter of last year, the innovative drug sector has performed weakly, and the most common misinterpretation of this round of correction is "equating weak stock prices with deteriorating fundamentals." In reality, both A-share and Hong Kong-listed innovative drug sectors achieved their first-ever profitability in 2025, marking a historic breakthrough.
So, why has the innovative drug sector continued to "bleed" in an environment where overall market risk appetite is acceptable? Chen Kehan analyzed that the tech theme focuses more on quarterly-level景气度 (prosperity), orders, and the potential for domestic substitution, whereas innovative drugs, even with improving fundamentals, require a longer time to translate business development, clinical trials, and overseas commercialization into free cash flow. "With limited仓位 (positioning capacity), funds may prefer to allocate to sectors with 'visible, quickly calculable, and short delivery paths.'"
In her view, the primary constraint for innovative drugs currently is not the industry trend but relative收益 (return) competition. The market is already pricing in a scenario of "higher interest rates for longer," and the assets most likely to be affected first are growth assets requiring远期贴现 (long-term discounting).
Chen Kehan stated that a more reasonable definition of the current trend in the innovative drug sector is not the end of the行情 (market trend), but a transition from a phase of全面估值修复 (comprehensive valuation repair) to a phase of结构性再定价 (structural repricing). At the sector level, short-term performance will still be suppressed by liquidity, the dominant tech theme, and overseas policy disturbances, but the underlying industry trend has not reversed.
Regarding specific industry logic, Caitong Asset Management fund manager Wang Xinyuan believes that pharmaceuticals are a "long-cycle, slow-variable" sector. The upward trends underpinning pharmaceuticals, especially innovative drugs—technological breakthroughs, clinical value delivery, and globalization delivery—have not changed. Future focus will remain on growth opportunities in细分方向 (sub-sectors) like the innovative drug industry chain (CXO, scientific research上游 (upstream)), innovative drugs themselves, and AI healthcare.