Stocks for innovative drugs surged more than 10% in a week—has the turning point truly arrived?

By: “Caijing” reporter Ling Xin

Edited by: Sun Aimin

After a week of continuous sharp gains, China’s A-share and Hong Kong-listed innovative drug sectors are still rising. On July 6, 2026, the A-share innovative drug sector rose 0.7% on the day, while the Hong Kong innovative drug sector gained 2.77% on the day.

Before that, the A/H innovative drug sectors had already led the market for a week. From June 29 to July 3, the Shenwan Pharmaceuticals and Biotech Index (801150.SI) rose 10.53%, ranking first among all first-level industries in the entire market by percentage gain, beating the CSI 300 index by more than 10 percentage points. The Hang Seng Innovative Drug Index (HSIDI.HI) surged 18.12% over the week.

This is the largest round of rebound in the innovative drug sector since 2026, and it is also a rare rally characterized by both volume and price rising together. From June 29 to July 3, the trading value of constituent shares of the Shenwan Pharmaceuticals and Biotech and the Hang Seng Innovative Drug increased by 30% and 50%, respectively, compared with the previous trading week.

Since September 2025, both A-shares and Hong Kong’s innovative drug sectors have been steadily drifting lower for nearly 10 months. Neither of the two rebound rounds in 2026 has changed the overall trend. This time, as tech sectors in markets around the world wobble and pull back, is the innovative drug rebound the turning point—or just a one-off spike?

“Hedging” choice amid tech-sector volatility?

In the past week, the innovative drug industry did not see any major positive catalysts. For the reasons behind the innovative drug rebound, multiple interviewees attributed it to a “hedging” move brought by tech-sector volatility.

On July 1, news broke that tech giant Meta plans to sell idle computing capacity, triggering a sharp pullback in high-position AI tech stocks. Capital flowed out from the semiconductor hardware sector and surged into currently low-position sectors, including innovative drugs. A person from the investment community in the medical field said on a social platform, “Let’s all hedge by going into innovative drugs.”

During the week from June 29 to July 3, the trading value of constituent stocks in the Shenwan Pharmaceuticals and Biotech sector exceeded 750 billion yuan, up 30% from the previous week; the trading value of constituent stocks in the Hang Seng Innovative Drugs sector was 58.7 billion Hong Kong dollars, up nearly 50% from the previous week.

From late March to early April this year, the innovative drug sector also saw a round of gains. The main driver was that a group of innovative drug companies swung to profitability, as well as strong performance from leading CXO (pharmaceutical contract outsourcing) companies such as WuXi AppTec. However, that rebound could not be sustained: both market indices fell back within less than a month, and trading value also dropped sharply.

“Overall market sentiment around the world is anchored on AI as the main line, so for other non-AI-related sectors, attention and capital allocation are, for now, relatively less,” said Zhang Jialin, head of healthcare and pharmaceutical research at Nomura China, in an interview with Caijing in May.

More specifically, in the first half of 2026, the continuous rise of tech sectors attracted large amounts of capital, while after the 2025 cycle of innovative drugs, the sector was already at a relatively high level, leading to capital concentrating on profit-taking and exiting. “Especially in Hong Kong, foreign capital has a high share. This year, tech-sector sentiment in Japan and South Korea has been hot. SpaceX raised more than $75 billion in funding, which is the largest-scale IPO in global history. Huge capital is ‘coming to bid,’ and that also affects Hong Kong’s liquidity; and innovative drugs are the sector most sensitive to liquidity,” a healthcare pharma investment research professional at a foreign institution told Caijing.

Starting in mid-June, tech sectors in markets worldwide began to fluctuate, and “hedging” sentiment began to show. Meanwhile, expectations for Fed rate cuts kept warming up, the U.S. dollar index weakened in stages, and expectations for looser liquidity grew stronger. The U.S. Nasdaq-listed S&P Biotechnology Index (XBI.P) has been rising steadily since mid-June, with gains reaching 24% so far.

In A-shares, the current price-to-earnings ratio of the Wind Semiconductor Industry (882121.WI) is above 200 times, while that of the innovative drug industry (8841049.WI) is below 50 times. The relatively low-position innovative drug sector has also become a “hedging” choice for capital.

In fact, toward the end of the first quarter, after experiencing a six-month pullback, the innovative drug sector already showed signs of inflows from institutional funds. According to Wind data, in Q1 2026, public funds significantly increased their holdings in the innovative drug sector; the holding proportion rose from 7.97% at the end of 2025 to 9.53%.

What’s the quality of the innovative drugs themselves?

“I have been following the development and changes in China’s entire pharmaceutical industry for over 10 years. In the past one or two years, there have been quite a few positive changes. The competitive strength of China’s pharmaceutical companies across the globe has become stronger and stronger,” Zhang Jialin believes. In particular, since 2025, the fundamentals of China’s pharmaceutical industry have been in a relatively good state—“whether it’s innovative drug going global or improvements in profitability of biotech companies.”

According to a research report by Northeast Securities, from January to May 2026, China’s innovative drug BD (business development) contract amount reached over $8 billion, up 73% year over year. Also, according to medical intelligence platform PharmaMagic’s “2026 Q1 Pharmaceutical Trading Trends Report,” in Q1, China recorded 98 innovative drug transactions totaling $61.4 billion, accounting for 69.7% of global transaction scale. The quarterly trading value has already exceeded the total for all of 2024.

Export licensing revenue may drive some innovative drug companies’ earnings higher. For instance, in Q1, Zhaijian Pharma recognized authorized licensing revenue of 654 million yuan, while quarterly revenue was 905 million yuan, up 440.07% year over year. Karel Pharmaceutical announced on June 12 that its controlling subsidiary Kelun-Botai received 603 million yuan of revenue from YiLian Biotech related to the revenue share for YL201 in an external authorization.

Even without large-scale BD support, some innovative drug companies have reached the critical point of turning profitable.

Rongchang Biotech, Innovent Biologics, BeiGene, and others announced in the first half of 2026 that they achieved profitability in 2025.

Junshi Biologics is also expected to turn profitable. In Q1 2026, revenue was 726 million yuan, up 45.09% year over year, while net profit attributable to shareholders was -21 million yuan, narrowing losses by 91.24% year over year. This was mainly due to the continued growth in sales of the core product Tereptilumab. Currently, all 12 indications of this drug have been included in medical insurance; with insurance reimbursement rolling out, Q1 domestic market sales rose 39.37% year over year.

On the policy side, industry anxiety about volume-based procurement and price cuts had eased. On June 29, the preliminary review results for the 2026 medical insurance drug list were published: the overall pass rate was 92%, up 8 percentage points year over year. The National Healthcare Security Administration’s centralized procurement office also made it clear that innovative drugs within the patent term are comprehensively exempt from volume-based procurement.

A large number of pharmaceutical companies repurchased shares to demonstrate confidence in their future development.

According to Wind data, as of June 26, 2026, a total of 166 A/H-listed biotech and pharma companies have carried out share buybacks, with cumulative repurchase amounts of 13.345 billion yuan.

On July 2, Hengrui Medicine released a progress announcement on its share buybacks. As of June 30, 2026, the company had cumulatively repurchased 13.4702 million shares under its buyback plan, representing 0.20% of the total share capital; it had paid a cumulative amount of 83.7996 million yuan (about 838 million yuan), completing 83.8% of the lower bound of the expected buyback amount. The buyback plan began in August 2025, using the company’s own funds to repurchase shares to implement an A-share employee shareholding plan. The total repurchase fund range was between 1 billion and 2 billion yuan.

There are also sizable buybacks in Hong Kong. On June 15, China Biopharmaceutical Group announced a buyback plan to repurchase shares in the open market over the next 12 months with a total price not exceeding HK$2 billion. The reason was that “the board has noticed that the company’s share price has been quite volatile recently and believes the company’s value is currently severely undervalued.”

An Industry report by CSPC Financial indicates that repurchases are often used for equity incentives or to cancel shares, reflecting companies’ confidence in their business development and helping enhance shareholder value.

Regarding the main factors that will influence valuation recovery for the innovative drug sector in the future, Zhang Jialin judges that, “From an investment perspective, investors definitely still look at changes in fundamental earnings; that should be the biggest factor. In addition, we will also see clinical data disclosures corresponding to some assets under ongoing overseas authorizations. If these data show very good trends, it will significantly lift the sector’s valuation or improve sentiment and confidence. BD is also one aspect. If I had to rank them, it would likely be: financial data, clinical progress, and further BD news.”

As for whether this round of innovative drug sector rebound will be a one-off “blip,” a medical investment professional said that China’s overall innovative drug fundamentals being positive is already industry consensus, but “we also need to consider that segment/sector prices have already risen significantly in the short term, and overall market preferences, including the upcoming IPOs of two storage giants, Long鑫 Technology and Yangtze Memory. Given the fast global growth in the tech sector, it is still hard to say that innovative drug stock prices in the future will be determined entirely by fundamentals.”