Despite recent adjustments in the Hong Kong stock market's innovative drug sector, capital is quietly flowing into the sector amid continued policy support and accelerated internationalization. The Hang Seng Innovation Drug ETF (520500) has attracted a cumulative inflow of RMB 814 million since August 2025 (8/1/2025–10/30/2025), with no single-day net outflows recorded in October (10/1–10/30). This has driven both its fund size and shares to historic highs, reaching RMB 1.641 billion and 974 million shares, respectively, representing year-to-date increases of RMB 1.52 billion and 852 million shares. (Data source: Exchange; as of 12/31/2024, the fund size was RMB 121 million, and shares stood at 122 million.)

On the policy front, the 2025 national medical insurance negotiations officially commenced on October 30, introducing for the first time a "Commercial Insurance Innovation Drug Directory" mechanism. This marks a shift in China's healthcare system from "basic coverage" to "multi-tiered protection," potentially alleviating payment pressures for high-value innovative drugs through commercial insurance channels. Catalyzed by this news, trading activity in innovative drug-related products surged yesterday (10/30). Wind data shows that the Hang Seng Innovation Drug ETF (520500)—the only product in the market tracking the Hang Seng Innovation Drug Index—recorded a daily turnover of RMB 604 million, a 296.9% increase from the previous day. The sector opened strong in early trading today, reflecting robust market confidence.

Beyond policy support, the Federal Reserve's interest rate cuts have eased global liquidity, which may lower financing costs for innovative drug firms and boost R&D investments. Offshore Hong Kong markets typically react more sensitively to liquidity improvements, potentially enhancing the valuation of pipeline drugs.

The industry has also seen multiple positive developments. At the European Society for Medical Oncology (ESMO) Annual Congress (10/17–10/21/2025), Chinese research stood out, with 35 studies selected for oral presentations—23 of which were featured in the "Late-Breaking Abstracts" (LBA) session, and three in the prestigious "Presidential Symposium." These studies spanned multiple tumor types, underscoring the growing international recognition of China's innovative drug R&D capabilities.

Additionally, recent outbound licensing (BD) deals by domestic pharmaceutical companies have rebounded. From October 16 to 17, five BD agreements were signed, followed by a landmark deal on October 22 that set a new record for total transaction value in China. This collaboration not only includes high royalty shares in the U.S. market but also adopts a "co-development + co-commercialization" model, signaling deeper participation by Chinese firms in global strategic partnerships and highlighting their rising influence in technological innovation.

Industrial Securities noted that as BD deals continue to materialize, the sector's momentum may persist, with the "innovation + globalization" trend remaining intact. After short-term adjustments, the innovative drug sector's resilience could further strengthen. Investors are advised to focus on firms with improving fundamentals, as positive trends emerge in financing, orders, and earnings. (Source: Industrial Securities, 10/26/2025, "Xinda's Major BD Deal Marks Accelerated Global Expansion of Innovative Drugs")

The Hang Seng Innovation Drug ETF (520500) tracks the Hang Seng Innovation Drug Index, which was revised in August 2025 to exclude CXO firms, focusing instead on core upstream and midstream segments like biopharmaceuticals, chemical drugs, and APIs. Through the QDII mechanism, the ETF invests in 31 leading Hong Kong-listed innovative drug companies, covering cutting-edge R&D and commercialization. (Data source: Wind, fund announcements; as of 10/30/2025)

Supported by favorable policies, accelerated globalization, and improved liquidity, the innovative drug sector's long-term outlook remains bullish, enhancing the Hang Seng Innovation Drug ETF's (520500) investment appeal. With its large scale, high liquidity, and support for intraday T+0 trading, the ETF serves as an effective tool for investors to capitalize on opportunities in Hong Kong's innovative drug market.

Note: T+0 refers to the exchange's trading mechanism.

Risk Disclosure: Investments involve risks. Investors should assess their risk tolerance and review fund documents—including the prospectus and product summary—before investing. Past performance does not guarantee future results. Overseas investments carry additional risks such as currency fluctuations and foreign market volatility. The Hang Seng Index is compiled by Hang Seng Indexes Company Limited, which assumes no liability for its accuracy.

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