On December 29, Hong Kong stocks opened higher, with the Hang Seng Index in positive territory and the Hang Seng Tech Index briefly surging over 2%. Despite the broad market rally, the innovative drug sector unexpectedly declined. The Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880) fell more than 1.5% during the session, with heavyweight stock Sino Biopharmaceutical dropping over 2%, and leading stocks like Akeso and China Biologic Products also declining more than 1%. However, the Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880) continued to trade at a persistent premium on the secondary market, indicating potential bargain-hunting funds accumulating positions during the dip.
On the news front, towards the end of 2025, a wave of price cuts initiated proactively by multinational pharmaceutical giants Novo Nordisk and Eli Lilly quietly unfolded on government procurement platforms and e-commerce platforms, with actual transaction prices nearly halving compared to six months prior. Some industry experts pointed out that ahead of the impending patent expiration for semaglutide in 2026 and the commencement of the "beachhead assault" by domestic innovative drugs and biosimilars, these giants are attempting to build defensive walls by pre-setting price anchors. Nevertheless, numerous institutions remain bullish on domestic innovative drugs. Analysis suggests that the past two years have been a "bumper year" for the overseas expansion of China's innovative drugs, with both the number and value of out-licensing deals for Chinese innovative drugs repeatedly hitting new highs. The finalization of Business Development (BD) transactions is the first step in going global; as subsequent overseas Phase III clinical trials commence, the certainty of overseas approval increases, potentially leading to sustained valuation uplifts (based on increased potential peak sales and success probability of products), exemplified by companies like Kelun-Botech and Baili. Looking ahead to 2026, major industry conferences (clinical data updates), significant BD deals, and breakthroughs in new technologies are expected to continue providing positive catalysts for the sector, with timing-wise focus recommended on the first quarter of next year. From an allocation perspective, the Hong Kong Stock Connect innovative drug sector has been in a phase of adjustment since September, lasting over three months, with high-level risks largely released, thereby continuously enhancing its allocation appeal. For allocation tools, investors might consider the Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880) and its corresponding feeder fund (025221). The underlying index, the Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index, possesses three distinct advantages: 1. Pure and Comprehensive. Excludes CXO companies, purely focused on innovative drugs! Comprehensively covers companies engaged in innovative drug R&D. 2. High Concentration of Leaders. The top ten innovative drug leaders account for over 72% of the index weight, representing the core strength of the innovative drug sector. 3. More Controllable Risk. Imposes mandatory weight reductions on constituents with poor liquidity, effectively managing tail risks.
Interested in innovative drugs but hoping to reduce volatility? Investors can consider the market's sole Pharmaceutical ETF (562050) and its feeder fund (024986), which focuses on the top 50 A-share pharmaceutical leaders. While heavily weighted towards innovative drugs (around 60%), it also allocates approximately 25% to Traditional Chinese Medicine (TCM). The TCM sector is characterized by high dividends and stable performance, which can partially hedge against the high volatility of innovative drugs, thereby reducing the overall volatility and drawdown of the pharmaceutical index.
Data source: Shanghai Stock Exchange.