Innovative Drug Stocks Experience Unexpected Decline: Where Is the Market Heading? SINO BIOPHARM Leads Drop by 7%, Hong Kong Stock Connect Innovative Drug ETF (520880) Falls Over 2%, High Premium Emerges Again

Deep News
Aug 19

On August 19, Hong Kong's innovative drug sector experienced a notable pullback, with the Hong Kong Stock Connect Innovative Drug ETF (520880), representing the "new force" in innovative drugs, declining 2.6% in trading price. The downturn has created a wide premium gap, with real-time premium rates reaching 0.28%, indicating positive buying interest from institutional funds.

Most individual stocks retreated, with SINO BIOPHARM unexpectedly leading the decline by over 7% following earnings release. Sunshine Guojian, Innovent Biologics fell over 4%, while CanSino Biologics and BeiGene dropped more than 1%.

According to SINO BIOPHARM's latest semi-annual results, the company achieved revenue of 17.57 billion yuan and net profit attributable to shareholders of 3.39 billion yuan in the first half, representing year-on-year growth of 10.7% and 140.2% respectively, maintaining double-digit stable growth for three consecutive reporting periods. CICC indicated that the company's first-half performance exceeded expectations, primarily driven by stronger-than-expected growth in innovative product revenue and dividend income.

Regarding today's market correction, institutional analysts believe the adjustment may simply be a technical pullback following excessive gains in the preceding period. From a medium to long-term perspective, domestic policy support and overseas value recognition will sustain China's innovative drug market momentum, with the Chinese innovative drug industry expected to undergo comprehensive value revaluation.

Notably, as of August 18, the Hang Seng Hong Kong Stock Connect Innovative Drug Select Index tracked by the Hong Kong Stock Connect Innovative Drug ETF (520880) has accumulated gains of 112.33% year-to-date, leading various innovative drug indices and outperforming the Hang Seng Index (23.50%) and Hang Seng Tech Index (22.05%) by 86.82 and 87.46 percentage points respectively, demonstrating outstanding relative performance.

The Hang Seng Hong Kong Stock Connect Innovative Drug Select Index has a base date of December 31, 2020, and was launched on July 17, 2023. Since the index launch, annual performance for complete years has been: 2021: -22.72%; 2022: -16.48%; 2023: -19.76%; 2024: -14.16%. Index constituent composition is adjusted according to index compilation rules, and historical backtested performance does not predict future index performance.

TF Securities notes that from a valuation perspective, past innovative drug valuations were primarily domestic-focused, with main commercialization through medical insurance (or other channels) reaching domestic patient markets. Overseas partnerships provide opportunities for Chinese innovative drugs to participate in the broader global market (nearly ten times larger than domestic), with primary commercialization through licensing to overseas enterprises, ultimately reaching international markets. Considering the approaching intensive realization period for innovative drugs, sustained clarity in national policy support, and the well-defined trend of innovative drug industry development and industrial upgrading.

CICC expresses optimism about the long-term development trend of the innovative drug industry. Under the multi-faceted support of domestic engineering talent advantages, abundant clinical resources, and supportive policies, domestic innovative drugs have gradually evolved from a following era to leading innovation. After years of cultivation, domestic varieties are achieving commercial scale-up and are expected to benefit from payment-side policy reforms, enhancing innovative drug companies' profitability. Research pipelines show excellent data, and substantial BD deals continue to materialize. The innovative drug industry entering the 2.0 era has gradually completed qualitative improvements, and domestic new drugs will deeply participate in global markets over the next decade, with near-term cash inflows effectively supporting R&D to form a virtuous cycle.

The Hong Kong Stock Connect Innovative Drug ETF (520880) passively tracks the Hang Seng Hong Kong Stock Connect Innovative Drug Select Index and is the first ETF in the market tracking this index. The Hang Seng Hong Kong Stock Connect Innovative Drug Select Index precisely focuses on the innovative drug industry chain, with constituents primarily being innovative drug R&D companies, featuring high concentration in heavy-weighted stocks and significant leading advantages.

Note: The above individual stocks are all among the top 15 weighted stocks in the Hang Seng Hong Kong Stock Connect Innovative Drug Select Index, presented for display purposes only. Individual stock descriptions do not constitute investment advice in any form and do not represent holding information or trading activities of any fund managed by the management company.

Reminder: Recent market volatility may be significant, and short-term gains/losses do not predict future performance. Investors must make rational investments based on their financial conditions and risk tolerance, paying close attention to position and risk management.

Risk Warning: The Hong Kong Stock Connect Innovative Drug ETF passively tracks the Hang Seng Hong Kong Stock Connect Innovative Drug Select Index, which has a base date of December 31, 2020, and launch date of July 17, 2023. Index constituent composition is adjusted according to index compilation rules. Index constituents mentioned in this article are for display purposes only, and individual stock descriptions do not constitute investment advice in any form and do not represent holding information or trading activities of any fund managed by the management company. The fund management company assesses this fund's risk level as R4-Medium-High Risk, suitable for aggressive (C4) and above investors. Any information appearing in this article (including but not limited to individual stocks, comments, predictions, charts, indicators, theories, any form of expression, etc.) is for reference only, and investors must take responsibility for any autonomous investment decisions. Additionally, any views, analyses, and predictions in this article do not constitute investment advice in any form for readers and bear no responsibility for direct or indirect losses caused by using this article's content. Performance of other funds managed by the fund management company does not guarantee fund performance, past fund performance does not represent future performance, fund investment carries risks, and fund investment requires caution.

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