On the last trading day of October (October 31), the long-dormant innovative drug sector suddenly surged, with simultaneous momentum in both A-shares and Hong Kong markets. The Pharmaceutical ETF (562050), heavily invested in A-share innovative drug stocks, rose sharply by 2.46%, while I-Mab (06978) soared 20% intraday. Hong Kong-listed innovative drug stocks demonstrated high volatility, with the Hong Kong Stock Connect Innovative Drug ETF (520880), which exclusively tracks drug R&D firms, surging 5.25% on heavy volume. Key constituents such as 3SBio and Innobio led gains, climbing 11%.
On the policy front, China’s 2025 national medical insurance negotiations commenced in Beijing on October 30. This year’s negotiations introduced a new "commercial insurance innovative drug catalog" mechanism alongside the regular adjustments to the reimbursement list. Industry experts suggest this move could alleviate pricing pressure on high-value innovative drugs.
From a technical perspective, the Hong Kong Stock Connect Innovative Drug ETF (520880) shows multiple bullish signals. A strong bullish candlestick emerged near recent lows, breaking above the 5-day and 10-day moving averages on doubled trading volume, signaling a potential trend reversal. The MACD indicator’s shrinking bearish bars further suggest weakening downward momentum. Notably, over RMB 260 million flowed into the ETF in the past 10 trading days.
Fund manager Feng Chencheng of the Hong Kong Stock Connect Innovative Drug ETF (520880) commented that the innovative drug sector may be poised for a rebound, presenting a high-probability entry point for medium-to-long-term investors. First, the recent U.S.-China summit has temporarily mitigated geopolitical risks that previously weighed on the sector, potentially prompting capital inflows. Second, strong earnings reports from Innovent Biologics and Hengrui Pharmaceuticals have boosted sector confidence. Lastly, supportive policies from the medical insurance negotiations continue to favor innovative drugmakers.
In secondary markets, the innovative drug sector has undergone a two-month correction, with some leading stocks now trading at attractive valuations. The next phase of the rally may shift from liquidity-driven momentum to fundamentals-driven performance, favoring high-quality players.
**Hong Kong Stock Connect Innovative Drug ETF (520880): Pure-Play Exposure to High-Growth Innovators** The ETF passively tracks the Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index, which excludes contract research organizations (CROs) and focuses solely on drug R&D firms. Over 70% of its holdings target large-cap innovative drug leaders, offering concentrated exposure to the sector’s core growth drivers. For OTC investors, its feeder fund (025221) is available.
Year-to-date, the Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index has outperformed peers, rallying 108.14% as of end-September.
As the first ETF tracking this index, the Hong Kong Stock Connect Innovative Drug ETF (520880) had assets under management of RMB 1.806 billion by September-end, with average daily turnover of RMB 493 million since listing—ranking it as the largest and most liquid ETF in its category.
**Risk Disclosure**: The ETF’s underlying index (base date: Dec 31, 2020; launch date: July 17, 2023) posted annual returns of -22.72% (2021), -16.48% (2022), -19.76% (2023), and -14.16% (2024). Past performance does not guarantee future results. Constituent stocks are subject to index methodology changes. Individual stock mentions are illustrative and not investment recommendations. The fund carries an R4 (medium-high risk) rating, suitable for aggressive (C4) or higher-risk investors. Investors must independently assess risks. Fund performance does not guarantee future returns.