Technology and innovative drug stocks have recently displayed a see-saw pattern in market performance. On July 22nd, following a sharp rally, tech stocks experienced a pullback, while the innovative drug sector resumed its upward momentum.

The Hong Kong Stock Connect Innovative Drug Index opened lower but then surged sharply. The ETF tracking this index, HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880), which focuses 100% on innovative drug R&D companies, climbed as much as 3% intraday before paring gains to close up 1.11%. It significantly outperformed the broader market, with the Hang Seng Index down 0.95%. Trading volume was robust at 6.29 billion yuan.

Leading weighted constituents showed strength. IMMUNOTECH-B (06978) jumped over 8% at the open and closed up 4.55%. Sino Biopharmaceutical Limited gained 4.7%, while BeiGene, Ltd. and 3SBio Inc. closed up 1.81% and 2.19%, respectively.

Performance was mixed within the A-share pharmaceutical sector. Bright Pharmaceutical Group Co., Ltd. led gains, rising 13.14%, followed by Kelun Pharmaceutical Co., Ltd. up 3.93%. Conversely, Chengdu Kanghong Pharmaceutical Group Co., Ltd. fell 4.2%, and traditional Chinese medicine stocks broadly declined, with Zhangzhou Pientzehuang Pharmaceutical Co., Ltd. down 3.48%. The sole ETF tracking the pharmaceutical index in the A-share market, Huabao Pharmaceutical ETF (562050), touched an intraday high of 2% before retreating, ultimately closing with a slight gain. This marked its ninth positive session in the past ten trading days.

A significant catalyst emerged from recent news. On the 21st, a novel drug targeting a new mechanism, a "selective orexin type 2 receptor agonist," developed through global synchronized research, received approval in China. This represents a historic breakthrough, marking the first global multi-center R&D project for an original target where China achieved the first application and approval.

On the same day, former U.S. President Trump announced a plan to impose 100% tariffs on generic drugs in two years. Existing policies regarding patented drugs, branded drugs, and innovative drugs will remain unchanged due to their effective implementation.

In the secondary market, the A+H innovative drug sector has been trending upward with volatility since mid-June. Analysis from Guotai Haitong suggests there may still be room for further gains from current levels, with the potential for the trend to continue. From a relative valuation perspective, A-share ETFs heavily weighted in innovative drugs have not yet surpassed their early-year highs, while the Hong Kong Stock Connect Innovative Drug ETF remains at relatively lower levels, indicating more lagged performance.

Looking ahead, strong fundamental expectations support the sector. Nine Chinese innovative drugs are projected to complete U.S. Phase III clinical trials by 2026. If successful, sales in the U.S. market could commence in 2027, realizing commercial value.

For investors looking to track the innovative drug rebound, two key instruments are highlighted:

HUABAO HANG SENG HONG KONG STOCK CONNECT INNOVATIVE DRUG SELECTION TRADING OPEN ENDED INDEX SECURITIES INVES (520880): This ETF provides 100% exposure to innovative drug R&D companies. Its top ten holdings account for over 70% of the portfolio, emphasizing a focus on sector leaders. The underlying assets are Hong Kong-listed stocks, offering high volatility and supporting T+0 trading.

Huabao Pharmaceutical ETF (562050): This is the only ETF in the market tracking the pharmaceutical index. It features a unique allocation of "72% innovative drugs + 22% traditional Chinese medicine," combining the high growth potential of innovative drugs with the high dividend characteristics of the TCM sector.

Data is sourced from the Shanghai, Shenzhen, and Hong Kong stock exchanges, China Securities Index Co., Ltd., Hang Seng Indexes Company, and PharmCube. The institutional viewpoint is derived from a Guotai Haitong pharmaceutical sector report dated July 15, 2026, titled "9 Innovative Drugs to Report Global Phase III Data in 2026, Innovative Drug Sector Nears Global Sales Realization Stage."

Note: ETF funds do not charge sales service fees. When investors subscribe or redeem fund units, the subscription/redemption agency broker may charge a commission not exceeding 0.5%, which includes relevant fees levied by stock exchanges and registration institutions. Detailed fund fee structures are available in the respective fund legal documents.

Risk Disclosure: Constituent stocks of the indices mentioned are for illustrative purposes only. Descriptions of individual stocks do not constitute investment advice in any form, nor do they represent the holding information or trading动向 of any fund managed by the asset manager. The annual historical returns/annualized volatility of the CSI Pharmaceutical Index from 2021 to 2025 were: -9.10%/23.43%, -21.09%/25.92%, -3.70%/18.25%, -6.53%/29.46%, 9.38%/16.12%, respectively. The annual historical returns/annualized volatility of the Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index from 2021 to 2025 were: -22.72%/35.30%, -16.48%/44.08%, -19.76%/34.79%, -14.16%/38.47%, 66.32%/39.20%, respectively. Index constituents are adjusted according to the index compilation rules. Past performance is not indicative of future results. The fund manager assesses the risk rating of the Healthcare ETF, Huabao Pharmaceutical ETF and their feeder funds as R3-Medium Risk, suitable for Balanced (C3) and above investors. The risk rating for the Huabao Hong Kong Stock Connect Innovative Drug ETF and its feeder fund, and the Huabao Hong Kong Stock Connect Healthcare ETF, is assessed as R4-Medium to High Risk, suitable for Aggressive (C4) and above investors. Any information appearing in this article (including but not limited to individual stocks, commentary, forecasts, charts, indicators, theories, and any form of expression) is for reference only. Investors are responsible for any independent investment decisions. Furthermore, any views, analysis, or forecasts in this article do not constitute investment advice of any kind to readers, and no liability is accepted for any direct or indirect losses arising from the use of this content. The performance of other funds managed by the fund manager does not guarantee the performance of these funds. The past performance of a fund does not represent its future performance. Fund investment carries risks.

A bullish MACD crossover signal has formed, with several stocks showing favorable gains.