Hong Kong Stock Connect Innovative Drugs Caught in Adjustment Again, Have They Hit Bottom? Institutions: Currently Can Increase Emphasis and Allocation Position on Innovative Drugs

Hong Kong stocks in the pharmaceutical sector have returned to volatility, continuing their weakness today (March 13). Innovative drugs and healthcare stocks are both underperforming. The Hong Kong Stock Connect Innovation Drug ETF (520880), which targets 100% innovative drug development companies, and the Hong Kong Stock Connect Healthcare ETF Huabao (159137), a T+0 trading tool for healthcare stocks, both declined another 1%, marking three consecutive days of decline. However, intra-market trading continues to trade at a premium, reflecting active buying interest.

Specifically, among innovative drug stocks, Federal Pharmaceutical and Baoji Pharmaceutical-B fell 14.13% and 11.25%, respectively, leading declines, with companies like Yingxi Intelligent and Changfeng Pharmaceutical also falling sharply. Lepu Biotech-B and Rongchang Biotech, on the other hand, rose 4.46% and 3.02%, defying the trend.

This week, the Hong Kong Stock Connect Innovation Drug ETF (520880) has fallen 2.87%, marking three consecutive weekly declines. Looking at a longer timeframe, the ETF has been oscillating since September last year, with nearly six months of adjustment. The index underlying the ETF has retraced over 27% from its peak last year.

Fangzheng Securities recently stated that it recommends increasing focus and allocation to innovative drugs at this time. The sector may have reached a phased bottom, driven by four resonating factors: policy support, accelerated overseas expansion, profit realization, and clinical catalysts, making it a high-cost-performance investment opportunity.

1. Policy support: Biomedicine has been included in the country’s “Six Major Emerging Pillar Industries,” significantly elevating its strategic importance.

2. Accelerated overseas expansion: As of Q1 2026, license-out transaction volume approaches nearly half of the total for 2025.

3. Profit realization: Leading companies like BeiGene have entered profit cycles, with valuation centers expected to shift from PS to PE, significantly raising overall valuation levels.

4. Clinical catalysts: Major academic conferences such as ELCC, AACR, and ASCO will be held intensively in the first half of the year, further demonstrating pipeline clinical value.

Strategically, Fangzheng Securities believes that after a half-year of sharp correction, the bubble in innovative drug stocks has been cleared, and stock prices are showing positive feedback to business development. Market sentiment has shifted from over-optimistic expectations to fundamentals-driven, recommending prioritizing leading companies with strong commercialization capabilities, while also considering new technology platforms and differentiated tracks.

Opportunities for leading innovative drug companies to rebound are promising. Investors should focus on the Hong Kong Stock Connect Innovation Drug ETF (520880) and its off-market linked fund (025221), with 100% allocation to innovative drug R&D companies. The top ten holdings account for over 70%, highlighting their leading attributes.

【Special Reminder on Rebalancing of Hong Kong Stock Connect Innovation Drug ETF (520880)】

On Monday (March 9), the ETF’s underlying index (Hang Seng Hong Kong Stock Connect Innovation Drug Select Index) was rebalanced, with 13 stocks added and none removed, increasing the total to 50 constituents. This rebalancing further enhances the index’s relative advantage:

• Updated! Newly added innovative drug targets are included immediately, earlier than most similar indices.

• More comprehensive! All 50 innovative drug R&D companies are covered, making it the most complete Hong Kong Stock Connect index for this sector.

Given the full industry chain opportunity in innovative drugs, investors should also pay attention to the Hong Kong Stock Connect Healthcare ETF Huabao (159137), which has nearly 40% CXO content. It also covers hot topics like AI healthcare, brain-computer interfaces, and high-end medical devices. Among its 50 constituents, 41 are exclusive “A-shares with no Hong Kong listing,” highlighting its unique focus.

Data sources: China Securities Index Co., Ltd., Shanghai-Shenzhen-Hong Kong Exchanges, etc.
Institutional view: Fangzheng Medical, 20260310, “Latest View on Innovative Drugs: Phased Bottom Confirmed, Fourfold Resonance Catalyzes Reversal【Fangzheng Medical】”

Note: ETF funds do not charge sales service fees. When investors subscribe or redeem fund units, authorized brokers may charge a commission up to 0.5%, including related fees from stock exchanges and registries. For detailed fund rates, please refer to each fund’s legal documents.

Risk reminder: The index constituents shown are for display only. Descriptions of individual stocks are not investment advice and do not represent holdings or trading trends of any fund managed by the manager. The risk level of the Hong Kong Stock Connect Innovation Drug ETF and Hong Kong Stock Connect Healthcare ETF Huabao, as assessed by the fund manager, is R4—medium-high risk, suitable for active investors (C4) and above. All information in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, or any other statements) is for reference only. Investors are responsible for their own investment decisions. The views, analysis, and forecasts in this article do not constitute investment advice and do not hold the fund manager responsible for any direct or indirect losses resulting from the use of this content. Past performance of other funds managed by the fund manager does not guarantee future results. Investing in funds involves risks.

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