A significant portfolio rebalancing for the benchmark index (Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index) of Huabao Fund's HK Stock Connect Innovative Drug ETF (520880) officially took effect on Monday, March 9th.
According to an announcement from Hang Seng Indexes Company, this rebalancing involved "13 additions and 0 removals," increasing the number of constituents in the Hang Seng Hong Kong Stock Connect Innovative Drug Selection Index to 50. This expansion further strengthens the representation of the innovative drug research and development sector within the index. The 13 new members hail from various popular and cutting-edge fields such as AI-driven drug discovery, gene editing, small molecules, and bispecific antibodies, significantly enhancing the index's coverage of innovative drug R&D.
From a market capitalization perspective, 12 of the 13 newly added constituents have a market value exceeding HKD 10 billion. This includes segment leaders with market caps around HKD 30 billion, such as Insilico Medicine and Baiji Pharma-B, contributing a combined market value increase of over HKD 240 billion to the index. The total market capitalization of the index constituents has now risen to HKD 2.27 trillion, substantially boosting its large-cap characteristics.
In the secondary market, the Hong Kong stock market experienced a deep correction on March 9th. The innovative drug sector, which had seen significant gains over the previous two trading sessions, underwent a pullback. On the first day of the ETF's rebalancing, the HK Stock Connect Innovative Drug ETF (520880) closed down 2.05%, ending a two-day rally, with an intraday amplitude exceeding 3% and a trading volume of CNY 374 million.
Analysis suggests that the short-term volatility in the innovative drug sector is primarily due to liquidity and capital flow fluctuations, while underlying industry fundamentals remain strong. The current price level is seen as increasingly attractive for allocation. Notably, the HK Stock Connect Innovative Drug ETF (520880) frequently traded at a premium during the session, indicating active buying interest. Furthermore, the ETF saw substantial inflows of over CNY 92 million in the preceding five days.
On the policy front, this year's government work report explicitly identified biomedicine as an "emerging pillar industry." Analysis from Soochow Securities points out that this signifies the biomedicine industry's transition from a cultivation phase to a new stage as a strategic pillar and engine for economic growth.
Regarding industry developments, as of March 6th, the total value of outbound licensing deals (BD) for Chinese innovative drugs has already reached $56.8 billion, with upfront payments totaling $3.3 billion. The total deal value for this period is equivalent to 41% of the full-year 2025 figure and exceeds the total for the entirety of 2024. The upfront payment amount represents 46% of the full-year 2025 total.
Soochow Securities stated that while share prices for many innovative drug companies have seen significant pullbacks from their 2025 highs, placing both valuations and market sentiment at a cyclical low, the continued realization of BD deals and the advancement of previously licensed pipelines suggest that short-term price fluctuations do not alter the long-term growth logic of innovative drug globalization. The firm maintains a strongly positive outlook on the medium- to long-term allocation value of the innovative drug sector.
To position for a potential rebound in the innovative drug sector at current levels, investors may consider the HK Stock Connect Innovative Drug ETF (520880) and its corresponding feeder fund (025221). The ETF provides 100% exposure to companies focused on innovative drug R&D, with its top ten holdings accounting for over 70% of the portfolio, highlighting its concentration on industry leaders.
A MACD golden cross signal has formed, indicating positive momentum for some stocks.