Three Hong Kong Biotech Innovation ETFs Double in Returns This Year as Retail Investors Surge—Has the Sector Peaked After Three Straight Losses?

Hong Kong's innovative pharmaceutical sector has become a leading investment theme in 2025, with strong momentum pushing major indices to substantial gains. Since mid-January, the Hang Seng Innovative Pharmaceuticals Index has climbed 117% from a low of 1,530 points, while the CSI Hong Kong Stock Connect Innovative Pharma Index has surged 104.58% year-to-date. Wind data shows that, as of August 1, three ETF products—E Fund CSI HK Stock Connect Innovative Pharma ETF, Huatai-PineBridge Hang Seng Innovative Pharma ETF, and Wanjia CSI HK Stock Connect Innovative Pharma ETF—have recorded year-to-date returns of 100.62%, 100.48%, and 100.03%, respectively.

In terms of fund scale, GF CSI Hong Kong Innovative Pharma ETF and E Fund CSI HK Stock Connect Innovative Pharma ETF have reached RMB 15.9 billion and RMB 11.873 billion, respectively. Yin Hua CSI Innovative Pharma Industry ETF is also approaching RMB 10 billion, with a size of RMB 9.939 billion. In response to the sector's strong performance, fund issuers have expedited the launch of related products. According to Jiemian News, 12 new ETFs tracking Hong Kong’s innovative pharmaceutical indices have been established in 2025, with participation from asset managers such as E Fund, ICBC Credit Suisse, Yin Hua, Bosera, and Harvest Fund.

On July 18, ChinaAMC’s STAR Market Innovative Pharma ETF completed its fundraising. Bosera Fund followed on July 19, closing subscriptions early for its Hang Seng HK Stock Connect Innovative Pharma ETF, which raised RMB 327 million. The ETF began trading on August 1, with its listing document showing zero stock holdings as of July 25, indicating it was still in its portfolio construction phase. Bosera confirmed that the investment portfolio disclosed reflects the status two trading days prior and that allocations would be adjusted before the fund's trading debut.

Retail investors have been actively buying into these ETFs. Bosera’s listing document reveals that individual investors hold 98.15% of shares, with institutional investors accounting for only 1.85%. Among the top ten holders, all but one—Shanghai Yihe Yuanyuanqi Private Fund—are individuals. Similarly, ChinaAMC’s STAR Market Innovative Pharma ETF shows a 90.92% retail investor share, with individuals holding substantial positions among the top shareholders.

The continued strength of the innovative pharmaceutical sector has been attributed to a convergence of favorable factors. Huatai-PineBridge Fund cited policy support, internationalization progress, enhanced R&D efficiency, and sustained capital inflows as key drivers. Hong Kong’s Chapter 18A listing rule has contributed to the scarcity value of biotech assets, allowing pre-revenue and pre-profit biotech firms to list on the main board. This has attracted high-growth companies that tend to outperform during sector rallies.

With its status as an offshore market, Hong Kong has a high proportion of foreign capital. These investors often favor frontier biotech assets and evaluate pharmaceutical firms based on R&D milestones. As R&D accelerates, such companies are expected to realize concurrent growth in valuation and innovation capabilities.

GF Fund's Liu Jie noted that loosening regulatory conditions and improving corporate earnings prospects have enhanced the sector’s investment appeal. Relative to other growth sectors, valuations remain reasonable. Since the “4+7” bulk procurement reform in 2018, domestic pharmaceutical firms have been transitioning from generics to innovative drugs. This seven-year transformation is now yielding results. Coupled with the upcoming ESMO conference and associated data releases and business development activity, investor confidence remains strong.

Some market observers liken the current momentum to a "DeepSeek moment" for China’s pharmaceutical sector, speculating whether biotech innovation might catalyze a broader market rally. Bosera Healthcare Fund Manager Chen Ximing emphasized the importance of industry trends and financing conditions. He noted that many innovative pharma firms have gone public in Hong Kong this year and that the sector's performance has positively influenced upstream suppliers and contract research organizations. Some firms have already shown improvements in 2025 earnings and order volumes.

Huatai-PineBridge Fund added that with international business development partnerships progressing steadily, innovative drug investments are transitioning from concept to commercial return. Many companies are expected to turn profitable through product launches, technological breakthroughs, and overseas deals. The sector is shifting from capital-driven to profit-driven growth, with improved fundamentals reinforcing its position as a long-term growth theme.

After six months of strong gains, the Hang Seng Innovative Pharmaceuticals Index has declined for three consecutive days as of August 1. This has raised questions about a potential short-term peak. Huatai-PineBridge Fund cautioned that current trading intensity and valuation percentiles are relatively high by historical standards. Given the sector’s inherently high volatility and risk, investors should weigh long-term fundamentals against near-term market fluctuations