Since August, Hong Kong's innovative drug supply chain has reignited, with CXO stocks taking the lead. On August 10, WuXi AppTec H-shares hit a new all-time high, pushing its market cap above 600 billion Hong Kong dollars intraday. The Hong Kong Stock Connect Medical ETF Huabao (159137) holds over 50% of its portfolio in CXO stocks, with the WuXi group companies accounting for more than 38%. It surged nearly 5% during the session, hitting a new high in this rebound, and closed 2.24% higher on increased volume. The Hong Kong Stock Connect Innovative Drug ETF Huabao (520880), which focuses 100% on innovative drug R&D, also gained over 3.5% intraday, breaking through the 250-day moving average. Weighted leader BeiGene rose for the fifth consecutive session, hitting a three-month high. What's driving the broad rally in the innovative drug supply chain, and how to seize the main uptrend? Feng Chencheng, fund manager of the Hong Kong Stock Connect Innovative Drug ETF Huabao (520880), provides timely answers.

What Are the Rally's Drivers?

On one hand, it's a reflection of the US XBI index. Weak US non-farm payroll data has led to a pullback in US bond yields, and the US biotech ETF XBI has been rebounding since last week, driving the Hong Kong innovative drug sector's counterattack. On the other hand, strong fundamentals and low public fund allocation are attracting short-term capital. After a deep market correction, the recent rebound has lacked a clear theme. As the interim reporting season approaches, sectors or stocks with robust fundamentals may see short-term capital inflows. Meanwhile, public fund exposure to the pharmaceutical sector has dropped to a five-year low, creating conditions for a sector-wide rotation from an underweighted position. Data shows that in Q2 2026, the proportion of public fund heavy holdings in the pharmaceutical industry was 6.6% (quarter-on-quarter -4.5pp). The medical sector's market cap weight was 4.7%, and non-medical funds' heavy allocation to pharmaceuticals was 3.2% (quarter-on-quarter -3.4pp), a near five-year low. In this low-allocation state, the sector is prone to attracting attention from underweighted funds. The frequent limit-up moves of small-cap stocks like Baihua Pharmaceutical and Harbin Pharmaceutical on the A-share market also indicate a recovery in overall investor sentiment toward the pharmaceutical sector.

How to Seize the Current Opportunity?

Growing interest in AI drug discovery is likely to benefit CXO stocks first. The Hong Kong Stock Connect Medical ETF Huabao (159137), with a high CXO weighting of nearly 52% and WuXi group companies making up over 38%, is a key beneficiary. The market is searching for new applications for large AI models, and AI drug discovery is a field that can tangibly improve productivity by shortening R&D cycles and enhancing the return on R&D investment. Recently, US-based Twist Bioscience and Hong Kong-listed GenScript Biotech have shown accelerated business performance and order growth. This has been further fueled by Anthropic's entry into drug R&D, boosting capital market attention on the AI drug discovery theme. From an industry logic perspective, the explosion in the number of AI-designed gene sequences and faster iteration speeds are primarily benefiting the 'tool sellers' in scientific research services, including gene synthesis, protein expression, antibody preparation, compound screening, data characterization, mouse testing, and synthetic biology, as well as the preclinical CRO chain. These upstream benefits are already partially reflected in earnings, and the impact is expected to spread to downstream areas like experimental monkeys, toxicology testing, and clinical trials. Anthropic launched the ClaudeScience research platform last month, announced its own internal drug R&D projects focusing on rare genetic diseases, and built its own wet lab. Twist Bioscience's earnings report shows accelerating AI-driven drug R&D business, with orders for fiscal 2026 potentially tripling. Management expressed confidence in a threefold increase in AI-related orders by fiscal 2027. GenScript Biotech in Hong Kong is seeing its gene synthesis and custom protein businesses benefit from increased AI drug discovery demand, potentially leading to an upward revision of its full-year guidance in the interim report. At the 2026 WAIC, ByteDance released its protein structure large model Protenix and the PX-Design series, with GenScript's TurboCHO fully automated high-throughput platform handling the validation of AI-designed drug molecules. Following CXO stocks, innovative drug companies are expected to take the lead in the next wave. The Hong Kong Stock Connect Innovative Drug ETF Huabao (520880), which targets 100% innovative drug R&D and holds 70% of its portfolio in R&D leaders, stands to benefit. Interim reports from innovative drug companies are showing positive signs: Innovent Biologics' Q2 product revenue exceeded 43 billion yuan, up about 60% year-on-year and 10% quarter-on-quarter, with commercialization now driven by multiple products. BeiGene's Q2 global revenue reached $1.705 billion (up 30% year-on-year), and it raised its full-year profit guidance, with Zanubrutinib demand exceeding expectations across multiple regions and indications. Zai Lab's Q2 product sales grew 11% quarter-on-quarter. It is projected that with commercial and business development pushes this year, the industry will generally see better-than-expected earnings. Coupled with potential business development deals in Q3 and Q4, and collaborations related to AI, innovative drugs are poised to take over from CXO and start a new rally.

Data sourced from Shanghai, Shenzhen, and Hong Kong stock exchanges, China Securities Index Company, and Hang Seng Indexes Company. Weight data from ETF fund PCF lists as of 2026.8.10. Note: ETF funds do not charge sales service fees. When investors subscribe or redeem fund shares, the subscription/redemption agent broker may collect a commission of up to 0.5% of the standard, which includes fees charged by the stock exchange, registration institution, etc. For fund fee rates, please refer to the legal documents of each fund. Risk disclaimer: The index constituent stocks in the article are for display purposes only. The description of individual stocks does not constitute any form of investment advice, nor does it represent the portfolio positions or trading intentions of any fund under the management company. The fund manager evaluates the risk level of the Hong Kong Stock Connect Medical ETF Huabao and the Hong Kong Stock Connect Innovative Drug ETF Huabao as R4-medium to high risk, suitable for active (C4) and above investors. Any information appearing in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, any form of expression, etc.) is for reference only. Investors must be responsible for their own independent investment decisions. Furthermore, any views, analyses, and forecasts in this article do not constitute investment advice to readers in any form, and the company is not liable for any 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 performance of a fund is not indicative of its future performance. Fund investment involves risk.