Hang Seng Indexes Company stated in a blog post that after four consecutive years of decline, the Hang Seng Innovative Drug Index is poised to achieve its first positive year since 2020. From the beginning of the year through August 22, 2025, the Hang Seng Innovative Drug Index has risen 116%, outperforming the broader market (represented by the Hang Seng Composite Index) which gained 30.5%, as well as the overall healthcare sector's 91.2% increase. Notably, this strong year-to-date performance has pushed the index to its highest level since December 2021.

Figure: Annual changes of the Hang Seng Innovative Drug Index since 2020 Source: Hang Seng Indexes Company; Data as of August 22, 2025

Figure 6: Hang Seng Innovative Drug Index outperforms Hang Seng Composite Index year-to-date Source: Hang Seng Indexes Company; Reset to 100 on December 31, 2024; Data as of August 22, 2025

Healthcare Sector Leads with Over 91% Gains as Best Performing Sector Year-to-Date

The Hang Seng Composite Index covers 95% of the total market capitalization of Main Board listed securities and serves as a benchmark indicator for the Hong Kong stock market. As of August 22, 2025, the Hang Seng Composite Index has gained 30.5% year-to-date, already exceeding the full-year gain of 16.3% recorded in 2024.

According to the Hang Seng Industry Classification System (HSICS), the Hang Seng Composite Index can be subdivided into 12 sector indices, reflecting the performance of different segments of the Hong Kong stock market. Figure 1 shows that as of August 22, 2025, all 12 sectors recorded gains ranging from 3% to 91.2%.

Among the 12 sectors, healthcare performed best with a year-to-date gain of 91.2%, followed by materials (+73.1%) and information technology (+44%). Energy and utilities lagged behind other sector indices with gains of 4% and 3% respectively.

Figure 1: Year-to-date performance of Hang Seng Composite Index and sector indices Source: Hang Seng Indexes Company; Data as of August 22, 2025

Healthcare IPO Market Recovery Shows Strong First-Day Trading Performance

The healthcare sector's outperformance relative to the broader market is also reflected in the Hong Kong IPO market. According to WIND data as of August 22, 2025, the top 5 IPOs with the best first-day performance in 2025 all came from the healthcare sector, with gains ranging from 78.7% to 206.5%.

In comparison, the overall IPO market's average first-day performance was an 18.4% gain, while healthcare-related IPOs outperformed the overall IPO market with an average first-day gain of 49.3%. Among these, pharmaceuticals and biotechnology showed even higher gains, averaging 58.3% (Figure 2).

Notably, the Hong Kong IPO market has recovered this year, with healthcare IPO activity showing a marked revival. Since 2021, fundraising by healthcare IPOs has continuously declined, falling to just over HK$5 billion in 2024 (Figure 3). However, this multi-year downward trend began to reverse in 2025.

As of August 22, 2025, healthcare-related IPOs have raised HK$20.7 billion year-to-date, not only 299% higher than the full-year 2024 amount but also the highest level since 2021. The healthcare IPO recovery has been primarily driven by pharmaceuticals and biotechnology, which raised HK$19.4 billion year-to-date, accounting for approximately 93% of healthcare IPOs.

Figure 2: Average first-day performance of Hong Kong IPOs in 2025 Source: WIND, Hang Seng Indexes Company; Data as of August 22, 2025

Figure 3: Hong Kong healthcare sector IPO fundraising amounts Source: WIND, Hang Seng Indexes Company; Data as of August 22, 2025

Hang Seng Innovative Drug Index: Methodology Adjustments to More Accurately Reflect Index Objectives

Given the surging market interest in pharmaceuticals and biotechnology and strong sector performance, the Hang Seng Innovative Drug Index, through its targeted index design, effectively captures these market trends.

The Hang Seng Innovative Drug Index was launched in May 2023, with historical data traceable back to December 2019. It aims to reflect the performance of Hong Kong-listed companies that are eligible for Stock Connect trading and whose businesses are related to innovative drug research, development, and production.

The index constituents come from two business subcategories: pharmaceuticals and biotechnology. The top 40 companies ranked by relevance score (correlation with innovative drug business) are selected as constituents. This relevance score is derived from natural language processing (NLP) analysis of public information.

Methodology adjustments to the Hang Seng Innovative Drug Index were announced on June 30, 2025, and took effect on August 11, 2025. In addition to adding Southbound Stock Connect trading eligibility requirements, the adjustments also excluded companies whose main business is in the pharmaceutical outsourcing (CXO) industry, including Contract Research Organizations (CROs), Contract Manufacturing Organizations (CMOs), and Contract Development and Manufacturing Organizations (CDMOs).

These adjustments aim to enable the Hang Seng Innovative Drug Index to more accurately reflect its index objective: tracking companies whose businesses are related to innovative drug research, development, and production, rather than service providers like CXOs.

Following the latest methodology adjustments, 7 constituents from the biotechnology business subcategory were removed, changing the composition of the Hang Seng Innovative Drug Index. As of August 11, 2025, biotechnology and pharmaceuticals account for approximately 54% and 46% of the index weight respectively (Figure 4), compared to 62% and 38% before the adjustment.

Figure 4: Hang Seng Innovative Drug Index weight distribution (by business subcategory) Source: Hang Seng Indexes Company; Data as of August 11, 2025