On July 6th, the "pharmaceutical rally" erupted once again, with innovative drug stocks charting an independent upward trajectory.

In the A-share market, numerous pharmaceutical stocks surged over 10%, with Gan & Lee Pharmaceuticals and Zhejiang Huahai Pharmaceutical Co., Ltd. hitting the daily limit-up. Heavyweight constituents like Jiangsu Hengrui Pharmaceuticals Co., Ltd. and BeiGene, Ltd. rose over 6%. The sole ETF tracking the pharmaceutical sector, HUABAO SSE PHARMACEUTICAL INDUSTRY TRADING OPEN ENDED INDEX SECURITIES INVESTMENT FUND (562050), saw its intraday price surge over 4%, breaking through its annual moving average.



The Hong Kong Stock Connect innovative drug segment displayed significant elasticity. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVESTMENT FUND (520880), which invests 100% in innovative drug R&D companies, saw its intraday gain approach 7%, following a cumulative increase exceeding 16% last week. Constituent stocks rallied broadly, with GenFleet Therapeutics, Biocytogen, Duality Biologics, and NuoCheng JianHua among those rising over 10%. The leading heavyweight, Innovent Biologics, Inc., advanced 7%.



Key Drivers for the Sector

The fund manager for the Hong Kong Connect Innovative Drug ETF (520880) highlighted last week that, from a medium-term perspective, innovative drug stocks at current levels possess substantial upside potential, with China's global competitiveness in the field continuing to strengthen. Looking ahead, the sector is supported by multiple factors including industry trends, policy, valuation, and potential catalysts, underpinning a solid investment thesis.

1) The overseas expansion narrative continues, with international progress entering a phase of tangible realization. Out-licensing and business development activities for Chinese innovative drugs are accelerating. Products that have already been partnered are progressively entering overseas commercialization phases. The coming years are expected to see more domestically developed blockbuster innovative drugs launched and sold internationally, potentially boosting product sales peaks and success rates, thereby expanding the overall sector's potential.

2) Domestic policy remains supportive. The Government Work Report identified biopharmaceuticals as an "emerging pillar industry," further elevating the strategic importance of the pharmaceutical sector. Policies like the "Several Opinions on Improving the Drug Price Formation Mechanism" explicitly aim to optimize pricing mechanisms for first-in-class innovative drugs, supporting high-quality industry development.

3) Current innovative drug assets are generally undervalued. With vast overseas market potential, many companies have the prospect of doubling or more in value from a medium-term viewpoint.

4) Regarding catalysts, major industry conferences (such as WCLC, ESMO), significant BD deals, quarterly results, and technological breakthroughs are anticipated to provide ongoing positive momentum for the sector in the second half of the year.



Investment Tools to Track the Rebound

To gain pure exposure to innovative drugs, consider the Hong Kong Connect Innovative Drug ETF (520880). It offers 100% allocation to innovative drug R&D companies, with its top ten holdings constituting over 70% of the portfolio, highlighting its concentrated exposure to sector leaders. Its underlying assets are Hong Kong-listed stocks, offering high elasticity and T+0 settlement.

For investors seeking to mitigate volatility, the sole pharmaceutical sector ETF (562050) presents an option with its unique "75% innovative drugs + 25% traditional Chinese medicine" allocation. This is a scarce offering in the market, combining the high-growth potential of innovative drugs with the high-dividend characteristics of traditional Chinese medicine stocks.



Data is sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, China Securities Index Co., Ltd., and Hang Seng Indexes Company. Note: ETF funds do not charge sales service fees. When subscribing for or redeeming fund units, the subscription/redemption agent may charge a commission not exceeding 0.5%, which includes relevant fees charged by stock exchanges and registration institutions. Please refer to the legal documents of each fund for specific fee details.

Risk Disclosure: The index constituents mentioned are for illustrative purposes only. Descriptions of individual stocks do not constitute investment advice in any form and do not represent the holdings or trading动向 of any fund managed by the fund manager. The fund manager assesses the risk rating of the Pharmaceutical ETF (562050) and its feeder fund as R3-Medium Risk, suitable for Balanced (C3) and above investors. The risk ratings for the Medical ETF feeder fund, Hong Kong Connect Medical ETF and its feeder fund, and Hong Kong Connect Innovative Drug ETF (520880) and its feeder fund are R4-Medium to High Risk, suitable for Aggressive (C4) and above investors. Any information appearing herein (including but not limited to individual stocks, commentary, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors are solely responsible for their independent investment decisions. Furthermore, any views, analysis, or forecasts herein do not constitute investment advice of any kind to readers, and no responsibility is accepted for any direct or indirect losses arising from the use of this content. The performance of other funds managed by the fund manager does not guarantee the performance of this fund. Past performance of a fund is not indicative of its future results. Fund investment carries risks.

A MACD golden cross signal has formed, indicating positive momentum for these stocks.