Innovative drug stocks in both the A-share and Hong Kong markets continued their downward spiral on September 11, the day before the 2026 World Conference on Lung Cancer (WCLC) kicked off, extending a five-session losing streak this week. Huabao Hong Kong Connect Innovative Drug ETF (520880), which focuses exclusively on innovative drug research and development, has now fallen below all its major moving averages, while the benchmark index underlying Huabao Pharmaceutical ETF (562050), holding A-share innovative drug heavyweights, posted its fifth consecutive bearish candle on both daily and weekly charts.
What's driving this latest round of adjustment in the innovative drug sector? Market analysis points to three converging pressures. Starting with the news flow, the national medical insurance negotiation concluded, prompting earlier profit-taking by investors. From September 5 to 8, the on-site negotiation and bidding for the 2026 National Basic Medical Insurance Drug Catalog wrapped up, alongside the completion of price consultations for the commercial health insurance innovative drug catalog. With the negotiation phase now over and results pending, the market lacks fresh catalysts in the near term, leading early investors to lock in gains—a classic "sell the fact" pullback.
Sentiment-wise, fluctuating overseas interest rate expectations are weighing on valuations. The 10-year U.S. Treasury yield has climbed to near three-year highs, with market pricing suggesting roughly a 70% probability of a Federal Reserve rate hike of 25 basis points. This directly pressures innovative drug companies, whose valuations rely heavily on discounted future cash flows. Meanwhile, rising energy supply risks and higher oil prices are stoking inflation concerns, further dampening appetite for high-risk growth stocks.
On the capital front, rotational fund outflows are adding to the pressure. Both A-share and Hong Kong markets have been trading in a tight range with shrinking volumes recently, while sector rotation has accelerated. Funds are swiftly shifting between sectors, with some money exiting innovative drugs in favor of defensive plays like high-dividend stocks, driven by risk-averse sentiment.
Looking ahead, short-term volatility and consolidation may persist as market sentiment remains fragile. However, on a medium-term basis, a dense pipeline of industry catalysts could reignite momentum: the WCLC kicks off on September 12, followed by the European Society for Medical Oncology (ESMO) congress on October 23, where key clinical data from companies such as Kelun-Biotech, RemeGen, and Sino Biopharmaceutical are set to be unveiled. Additionally, the new medical insurance and commercial insurance catalogs are scheduled for official implementation on January 1, 2027.
For investors looking to position early in the innovative drug space, two investment vehicles stand out. Huabao Hong Kong Connect Innovative Drug ETF (520880) closely tracks the Hang Seng Hong Kong Stock Connect Innovative Drug Select Index, with 100% exposure to innovative drug R&D companies. Its top ten holdings account for over 70% of the portfolio, highlighting a concentrated, leader-heavy profile. Underlying assets are Hong Kong-listed stocks, offering high beta and T+0 trading flexibility.
Meanwhile, Huabao Pharmaceutical ETF (562050) is the only ETF in the market tracking the pharmaceutical index, featuring a unique allocation of "72% innovative drugs and 22% traditional Chinese medicine," blending the high-growth potential of innovative drugs with the high-dividend appeal of TCM names.
Data sourced from the Shanghai-Hong Kong-Shenzhen stock exchanges, CSI Index Company, and Hang Seng Index Company. Note: ETF funds do not charge sales service fees. When subscribing or redeeming fund shares, the agent broker may charge a commission of up to 0.5%, which includes fees levied by stock exchanges and registration institutions. For detailed fee structures, please refer to the respective fund legal documents.
Risk disclosure: Index constituent stocks are shown for illustrative purposes only, and individual stock descriptions do not constitute investment advice in any form, nor do they represent the holdings or trading activities of any fund under the manager's umbrella. The CSI Pharmaceutical Index's annual historical returns/annualized volatility from 2021 to 2025 were as follows: -9.10%/23.43%, -21.09%/25.92%, -3.70%/18.25%, -6.53%/29.46%, and 9.38%/16.12%. The Hang Seng Hong Kong Stock Connect Innovative Drug Select Index's annual historical returns/annualized volatility over the same period were: -22.72%/35.30%, -16.48%/44.08%, -19.76%/34.79%, -14.16%/38.47%, and 66.32%/39.20%. Index constituent compositions are adjusted from time to time according to index compilation rules, and past performance does not guarantee future results. The fund manager assesses the risk level of the Medical ETF, Pharmaceutical ETF Huabao, and its feeder funds as R3-moderate risk, suitable for balanced (C3) and above investors. The Hong Kong Connect Innovative Drug ETF Huabao and its feeder funds, as well as the Hong Kong Connect Medical ETF Huabao, carry an R4-moderate-to-high risk rating, appropriate for aggressive (C4) and above investors. Any information appearing herein (including but not limited to individual stocks, commentary, forecasts, charts, indicators, theories, or any form of expression) is for reference only, and investors must bear full responsibility for their own investment decisions. Furthermore, any views, analyses, or predictions in this article do not constitute investment advice to readers in any form, nor do they hold liability for direct or indirect losses arising from the use of this content. Performance of other funds managed by the fund manager does not guarantee the performance of this fund, and past performance does not represent future returns. Fund investment carries risks.