As interim earnings reports flood the market, the innovative drug sector has reignited investor enthusiasm, with several leading stocks surging post-results. On August 26, Innovent Biologics jumped nearly 10% to hit an all-time high, while the following day, Hansoh Pharmaceutical spiked 15% intraday, reaching a three-month peak. The Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880), which invests 100% in innovative drug R&D companies, has seen notably rising attention amid this momentum.

How should investors interpret the recent innovative drug rally? Fund manager Feng Chencheng of the Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880) has provided his latest analysis, breaking down the market logic from three key perspectives.

China-US Synergy Drives Sector Momentum

The innovative drug markets in China and the US are showing clear signs of co-movement. US biotech ETFs like XBI have been hitting new highs, ranking among the top-performing US ETFs over the past week. On August 25 alone, XBI recorded a single-day net inflow of $340 million, its largest since July 20. Throughout August, shares of US innovative drug ETFs including XBI and IBB have trended steadily upward, suggesting investors are rotating out of crowded AI positions and into the pharmaceutical sector, which offers clearer valuations and catalysts.

As for the sustainability of the US rally, in the near term, Nvidia's better-than-expected earnings on August 26 could attract AI trading capital back, potentially weakening the relative appeal of US biotech. Additionally, if US Treasury yields reach new highs, this could still impact the short-term trajectory of North American biotech stocks.

Chinese Innovators Deliver a Wave of Positive Catalysts

On the news front, Chinese innovative drug leaders have been delivering a steady stream of favorable developments. CanSino Biologics has partnered with DuPuy to develop mRNA-based personalized therapeutic tumor vaccines. Innovent Biologics reported first-half profits that already exceeded its full-year results from last year. Meanwhile, Akeso's Harmony-Gl1 study achieved its primary endpoint of overall survival in first-line biliary tract cancer, outperforming the PD-(L)1 plus chemotherapy control arm, with potential to further validate the iteration of the IO 1.0 standard of care in gastrointestinal tumors.

Looking ahead, innovative drug companies are entering a period of dense clinical data releases ahead of major conferences, including WCLC (World Conference on Lung Cancer, opening September 12) and ESMO (European Society for Medical Oncology Congress, opening October 23). As Chinese companies lead in bispecific antibodies and antibody-drug conjugates (ADC), positive results from their pipelines could provide strong support for the sector's valuation resilience.

Sector Position Rebalancing Continues to Support the Rally

In the secondary market, position rebalancing within China's pharmaceutical sector is ongoing. Stocks that have lagged in the current cycle are more likely to attract attention from new capital inflows. In the near term, market momentum may follow a pattern of "two steps back, three steps forward," but overall, the Hong Kong-listed innovative drug sector appears to remain on an upward trajectory, moving in sync with the North American biotech cycle.

The successful Phase III results of mRNA tumor vaccines have ushered the industry into a new era of cancer vaccines. This technological breakthrough opens fresh directions for the sector and continues to raise the long-term market cap ceiling for innovative drug companies globally.

For investors seeking full-chain exposure to innovative drugs, two T+0 trading tools are worth noting. The Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880) passively tracks the Hang Seng Hong Kong Stock Connect Innovative Drug Select Index, with 100% allocated to innovative drug R&D companies and 70% of positions in R&D leaders. Its off-exchange feeder fund is available under code 025221. Additionally, the Huabao Hong Kong Stock Connect Healthcare ETF (159137) passively tracks the Hong Kong Stock Connect Healthcare Theme Index, with heavy exposure to the innovative drug supply chain: 50% in CXO and 20% in innovative drugs, including over 38% allocated to WuXi-related entities. Its off-exchange feeder fund carries code 026922.

Data is sourced from public information from the Shanghai, Shenzhen, and Hong Kong exchanges, as well as CSI and Hang Seng Index companies. Weightings are as of August 26, 2026. Notably, Innovent Biologics and Hansoh Pharmaceutical account for 12.27% and 6.5% of the Hang Seng Hong Kong Stock Connect Innovative Drug Select Index, respectively.

Regarding fees, ETF funds do not charge sales service fees. When subscribing or redeeming fund shares, the authorized broker may charge a commission of up to 0.5%, which includes fees levied by the stock exchanges and registration institutions. Detailed fee structures are available in each fund's legal documents.

Risk warning: The fund manager has assessed the risk level of the Huabao Hong Kong Stock Connect Healthcare ETF, the Huabao Hang Seng Hong Kong Stock Connect Innovative Drug Selection ETF (520880), and their feeder funds as R4 (medium-high risk), suitable for aggressive (C4) and above investors. The index constituent stocks mentioned are for demonstration purposes only and do not constitute investment advice in any form, nor do they represent the holdings or trading activities of any fund under the manager. Any information 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 must bear full responsibility for their own investment decisions. Furthermore, any views, analyses, or forecasts herein do not constitute investment advice to readers, and no liability is assumed for any direct or indirect losses arising from the use of this content. Past performance of funds managed by the fund manager does not guarantee future results, and fund investment carries risks.