The pharmaceutical sector within the Hong Kong Stock Connect experienced a significant rebound on June 29, with the innovative drug industry chain leading the charge. The HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ETF Code: 520880), which focuses exclusively on innovative drug R&D, and the HUABAO HANG SENG HK-STOCK CONNECT HEALTHCARE ETF (ETF Code: 159137), with over 45% exposure to CXO companies, both surged by more than 4%.

Key Stock Performances

Leading innovative drug stocks saw widespread gains. AKESO (HKEX: 09926) rose over 7%, while CSPC Pharmaceutical Group Limited and Sino Biopharmaceutical Limited both climbed more than 5%. The broader Hong Kong Stock Connect healthcare theme also advanced, with WuXi Biologics (Cayman) Inc. and WuXi AppTec Co., Ltd. gaining 5% and 4% respectively, XtalPi Inc. jumping over 11%, and internet healthcare leader JD Health International Inc. rising more than 2%.

Sector Catalysts and Outlook

Market analysis points to upcoming major medical conferences, including ESMO and WCLC in the third quarter, which are expected to put domestic innovative drugs back in the global spotlight, further highlighting their clinical value. Additionally, the realization of R&D value in the second half of the year is anticipated to drive an upward re-rating of the sector's overall valuation.

Analysis of the CXO Segment

A recent securities research report recommends focusing on the strategic allocation value of CXO companies for the full year. The rationale is threefold: 1) Strong fundamentals, with leading CDMOs expected to maintain solid performance and order trends in Q2, and robust domestic CXO order growth alongside recovering pricing and gross margins; 2) Positive catalysts, as oral GLP-1 molecules are poised to generate strong new order demand, with future demand expected for novel molecules like Pan-RAS, triple-target, Amylin, cyclic peptides, bispecific/multispecific antibodies, and small nucleic acids; 3) Attractive valuations, with most companies trading at a 2026 PEG ratio below 1x, and WuXi AppTec Co., Ltd. trading at a 2026 P/E ratio under 15x.

Investment Vehicles for the Rebound

For investors looking to capitalize on this rebound in Hong Kong-listed pharmaceuticals, two key T+0 trading instruments are highlighted. To invest purely in innovative drug companies, the HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (ETF Code: 520880) offers 100% exposure to innovative drug R&D firms, with its top ten holdings accounting for over 70% of the portfolio, emphasizing its focus on industry leaders. For exposure to the broader innovative drug industry chain, including CXO, the HUABAO HANG SENG HK-STOCK CONNECT HEALTHCARE ETF (ETF Code: 159137) has a current "CXO content" of approximately 45.17%, while also covering leading companies in innovative drugs, AI healthcare, and medical devices (including brain-computer interfaces).