Just one day before the opening of the 2026 WCLC (World Conference on Lung Cancer) on September 11, A-share and Hong Kong innovative drug stocks failed to halt their decline, extending losses to five consecutive trading days this week. The Huabao HK Connect Innovative Drug ETF (520880), which is 100% allocated to innovative drug R&D companies, has now fallen below all key moving averages, while the underlying index of the Huabao Pharmaceutical ETF (562050), which heavily weights A-share innovative drug names, has posted five straight bearish candles on both the daily and weekly charts.

How should investors interpret this current correction in the innovative drug sector? According to comprehensive market analysis, the pullback is likely driven by the convergence of three significant pressures. From a news perspective, the conclusion of the national medical insurance negotiations has triggered profit-taking by early investors. From September 5 to September 8, the on-site negotiation for the 2026 National Basic Medical Insurance Drug Catalog concluded, coinciding with the completion of price consultations for the commercial health insurance innovative drug catalog. With the negotiation period now over and entering a waiting phase for results, the market lacks fresh catalysts in the short term, prompting early investors to lock in profits and creating a "sell-the-news" style correction.

From a sentiment perspective, volatility in overseas interest rate expectations is suppressing sector valuations. The 10-year US Treasury yield has climbed to near three-year highs, with market pricing indicating approximately a 70% probability of a Fed rate hike of 25 basis points. This directly pressures innovative drug stocks, which rely heavily on discounted future cash flow valuations. Additionally, rising energy supply risks and higher oil prices are fueling inflation concerns, further dampening investor appetite for high-risk growth stocks.

From a capital flow perspective, rotation is driving funds out of the sector. Both A-share and Hong Kong markets have been experiencing shrinking volumes with sideways consolidation, and sector rotation has accelerated. Funds are rapidly switching between different sectors, with some capital flowing out of innovative drugs and into defensive plays like high-dividend stocks due to risk aversion.

What is the outlook from here? Given the current market sentiment, the sector may continue its consolidation and bottoming pattern in the near term. However, looking at the medium term, a dense pipeline of industrial catalysts could help the sector regain its upward momentum. The WCLC kicks off on September 12, followed by the ESMO (European Society for Medical Oncology Annual Meeting) on October 23, where key clinical data from companies including Kelun-Biotech, RemeGen, and Sino Biopharmaceutical will be presented. Furthermore, the new version of the medical insurance and commercial insurance catalogs will be officially implemented on January 1, 2027.

For investors looking to position themselves in innovative drugs at lower levels, two investment tools are worth attention. The Huabao HK Connect Innovative Drug ETF (520880) closely tracks the Hang Seng HK 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 its strong large-cap characteristics. The underlying assets are Hong Kong stocks, offering high elasticity and T+0 trading. The Huabao Pharmaceutical ETF (562050) is the only ETF on the market tracking the pharmaceutical index, featuring a unique "72% innovative drugs + 22% traditional Chinese medicine" allocation that combines the high growth potential of innovative drugs with the high dividend yields of TCM stocks.

Data sourced from the Shanghai, Shenzhen, and Hong Kong exchanges, CSI Index Company, and Hang Seng Index Company. It should be noted that ETFs do not charge sales service fees. When investors subscribe or redeem fund units, the subscription and redemption agent broker may charge a commission of up to 0.5% of the standard rate, which includes fees charged by the stock exchange and registration institutions. For detailed fund fee rates, please refer to the relevant fund legal documents.

Risk disclaimer: The index constituent stocks mentioned in this article are for display purposes only. Descriptions of individual stocks do not constitute investment advice in any form, nor do they represent the holdings or trading actions of any fund under the manager's umbrella. The CSI Pharmaceutical Index's annual historical returns/annualized volatility for 2021-2025 are: -9.10%/23.43%, -21.09%/25.92%, -3.70%/18.25%, -6.53%/29.46%, and 9.38%/16.12% respectively. The Hang Seng HK Connect Innovative Drug Select Index's annual historical returns/annualized volatility for the same period are: -22.72%/35.30%, -16.48%/44.08%, -19.76%/34.79%, -14.16%/38.47%, and 66.32%/39.20%. The composition of index constituents is adjusted according to the index construction rules from time to time, and past performance does not predict future results. The fund manager assesses the risk level of the Medical ETF, Huabao Pharmaceutical ETF (562050) and its linked funds as R3-medium risk, suitable for balanced (C3) and above investors. The risk level of the Huabao HK Connect Innovative Drug ETF (520880) and its linked funds, as well as the HK Connect Medical ETF, is R4-medium-high risk, suitable for aggressive (C4) and above investors. Any information appearing in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors must be responsible for their own independent investment decisions. Furthermore, any views, analysis, or forecasts in this article do not constitute investment advice of any form to readers, nor shall they bear any liability for direct or indirect losses arising from the use of the content herein. The performance of other funds managed by the fund manager does not constitute a guarantee of fund performance. Past performance of a fund does not represent its future performance. Fund investment involves risk.