On September 23rd, healthcare stocks once again bucked the broader market trend in Hong Kong, performing strongly against a widespread decline. The CXO sector, situated upstream in the AI drug discovery chain, displayed sustained strength throughout the day, with Biocytogen Pharmaceuticals (Beijing) Co., Ltd. leading gains at nearly 5%, while GenScript Biotech Corporation advanced another 3.21% to reach a five-year high! The benchmark index of the Hong Kong Stock Connect Healthcare ETF (159137) has an AI drug discovery content of nearly 70%, and the fund peaked at 1.4% during intraday trading before closing up 0.1%.

Image: Top ten constituent stocks by gain for Hong Kong Stock Connect Healthcare ETF (159137) on September 23rd.

The broader Hong Kong Stock Connect Innovative Drug sector experienced a pullback after an initial surge. The benchmark index of the Hong Kong Stock Connect Innovative Drug ETF (520880), which focuses 100% on innovative drug R&D companies, hit a high of 1.5% but closed down 0.3%. CanSino Biologics and Jingfang Medicine-B led gains with over 8% increases, while heavyweight stocks like Sino Biopharmaceutical Limited and Hansoh Pharmaceutical Group Company Limited continued to correct.

Image: Six-month performance trend for Hong Kong Stock Connect Innovative Drug ETF (520880).

The Hong Kong innovative drug chain has been relatively strong recently. Looking at the market structure, two key questions have drawn attention: First, with the rising popularity of AI drug discovery, why is the CXO sector outperforming? Second, can innovative drugs successfully take over the baton in subsequent market movements?

Addressing the first question: Why does AI drug discovery fuel the CXO sector? The market once feared that AI would replace traditional CRO demand. However, CXO companies like GenScript Biotech Corporation have disproven this through their actual performance: the "dry-wet lab closed loop" model of AI drug discovery amplifies rather than replaces experimental demand, positioning CXO as the most certain "water seller" in the AI drug discovery wave. Recently, GenScript Biotech Corporation became the wet lab service provider for global top-tier MNC Eli Lilly and Company's AI/ML drug discovery collaboration platform, LillyTuneLab™. They will provide protein expression, purification, and characterization analysis services to companies participating on the platform, converting AI predictions into biological validation data. This major collaboration validates the "water seller" logic of AI drug discovery for the CXO sector.

Addressing the second question: Can innovative drugs take over? Huatai Securities believes that subsequent market momentum may gradually spread to the innovative drug sector, which offers greater flexibility. From the current standpoint, within this September-end to early-October round of healthcare market movement, innovative drugs, especially oncology innovation assets, have the potential to become the leading gainers in the near term. This assessment is supported by three points: First, innovative drugs lagged relatively in the last round of healthcare rebound, with fund positions still at historical lows, giving them prominent overall flexibility advantages; Second, September to October marks a dense data readout window for innovative drugs; Third, key data points, such as Kelun-Biotech's Lung-06 pivotal study, may potentially change future oncology treatment standards.

For full-chain exposure to innovative drugs, two T+0 trading tools are worth consideration: Hong Kong Stock Connect Healthcare ETF (159137): Its benchmark index has an AI drug discovery content of nearly 70%, with upstream CXO industry chain companies accounting for over 50%. Representative constituent stocks include XtalPi Holdings Limited, GenScript Biotech Corporation, and the "Big Three" of the WuXi group. Off-exchange feeder fund: 026922. Hong Kong Stock Connect Innovative Drug ETF (520880): Its benchmark index allocates 100% to innovative drug R&D companies, with 70% of positions in innovative drug R&D leaders. Off-exchange feeder fund: 025221.

Data sources: Public information from the Shanghai-Hong Kong-Shenzhen exchanges, CSI Index Company, Hang Seng Index Company, etc. Weight data as of August 31, 2026. Institutional view: Huatai Securities, September 22, 2026, "Innovative Drug Sector Expected to Lead Gains, Recommending Increased Allocation." Notes on "AI Drug Discovery Content" and "CXO Content": The Hong Kong Stock Connect Healthcare ETF tracks the Hong Kong Stock Connect Healthcare Thematic Index, which covers 17 AI drug discovery-related constituent stocks (including pure AI drug discovery platforms, AI+CRO companies, and innovative drug companies with AI drug discovery initiatives), with a combined weight of 69.52%, of which CXO companies account for 55%. Constituent stock weight distribution: WuXi group (WuXi Biologics 18.77% + WuXi AppTec 14.70% + WuXi XDC 5.54%) totals 39.01%, GenScript Biotech Corporation at 8.15%, and XtalPi Holdings Limited at 4.02%. Fund fees: ETFs do not charge sales service fees. When subscribing or redeeming fund shares, the subscription and redemption agency broker may charge a commission of up to 0.5% of the standard, which includes fees charged by securities exchanges, registration institutions, etc. For detailed fund fee information, please refer to the relevant fund legal documents.

Special notice: The risk rating for Hong Kong Stock Connect Healthcare ETF and its feeder funds, as well as Hong Kong Stock Connect Innovative Drug ETF and its feeder funds, as assessed by the fund manager, is R4 - medium-high risk, suitable for investors with an aggressive (C4) risk profile or above. Risk disclosure: The index constituent stocks mentioned in this article are for display purposes only. Individual stock descriptions do not constitute investment advice in any form, nor do they represent fund holdings or transaction trends of any fund under the management of the fund manager. 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 are solely responsible for any investment decisions they make independently. Furthermore, any views, analyses, or forecasts in this article do not constitute investment advice to readers in any form, nor do they bear any responsibility for direct or indirect losses arising from the use of the content in this article. The performance of other funds managed by the fund manager does not constitute a guarantee of fund performance. Past fund performance does not represent future performance. Fund investment carries risks.