Overseas Funds "Lurking" in Innovative Drugs Through ETFs—What Happened?

According to data from SEIBro, a subsidiary of the Korea Securities Depository & Settlement Institute, as of March 9, 2026, Korean investors have net purchased $1.4809 million worth of innovative drug ETFs (code: 159992) in the past month, making it one of their key A-share related holdings. (Data source: SEIBro, as of 2026.3.9; reference: China Fund News “The Weapon is Here: Korean Investors One-Click Buy Chinese AI Semiconductors,” 2026.3.10)

What positive changes in the innovative drug sector have attracted the attention of overseas investors?

Policy Side | Innovative Drugs Receive Policy Boost Again

This year’s government work report again emphasizes “promoting high-quality development of innovative drugs and medical devices,” as well as “accelerating the development of commercial health insurance.” How will this benefit innovative drugs? (Reference: Yicai Global “Government Work Report Continues to Highlight ‘Innovative Drugs’ for Three Years in a Row, Focuses on Commercial Insurance Payment Security,” 2026.3.5)

1. Upgraded Positioning

In the 2026 government work report, biopharmaceuticals are for the first time positioned as an emerging pillar industry. Analysts believe this reflects the rapid improvement in the quality and scale of China’s biopharmaceutical industry. As both a livelihood and industrial sector, this new positioning is expected to further strengthen the industry attributes of biopharmaceuticals, elevating its strategic status. (Reference: Ping An Securities “Pharmaceutical Industry Review: Biopharmaceuticals Named as an Emerging Pillar Industry, Strategic Positioning Elevated,” 2026.3.6)

2. Improved Payment Security

The government work report also emphasizes accelerating the development of commercial health insurance to promote high-quality growth of innovative drugs and medical devices, better meeting the diverse medical needs of the public. Industry insiders note that basic medical insurance aims to “cover essentials,” while commercial insurance focuses more on cutting-edge, high-value drugs. The complementary nature of both benefits not only promotes high-quality development of the innovative drug industry but also meets multiple health needs of the population. (Reference: The Paper “Building Emerging Pillar Industries like Biopharmaceuticals, Cultivating Future Industries like Brain-Computer Interfaces, What Signals Are Being Sent,” 2026.3.5)

3. Optimization of Industry Environment

The 2025 government work report proposed “optimizing drug and consumables centralized procurement policies,” and the latest report continues this trend with “optimizing medical procurement and price regulation.” (Reference: The Paper “Building Emerging Pillar Industries like Biopharmaceuticals, Cultivating Future Industries like Brain-Computer Interfaces, What Signals Are Being Sent,” 2026.3.5)

Some analysts believe that optimizing drug procurement could further reduce the financial burden on the public, improve people’s livelihoods, and enhance the efficiency of medical insurance use. Paying for clinical value and promoting “value-based purchasing” could also guide pharmaceutical companies toward innovation-driven development. (Reference: China Post Securities “Building Emerging Pillar Industries like Biopharmaceuticals, Improving the Medical Security System, Promoting Commercial Insurance and Innovation,” 2026.3.9)

Industry Side | Core Logic of Innovative Drugs Remains Unchanged

Besides policy support, from an industry perspective, the core logic of innovative drugs in Hong Kong stocks remains unchanged.

With increasing commercialization capabilities, innovative drug companies are approaching a critical turning point of profitability. According to disclosed 2025 performance reports, many companies achieved profit growth or reduced losses in 2025. The main factors include increased sales of new drugs and revenue from BD licensing. Several leading innovative drug companies have already turned profitable. (Reference: Securities Daily “Speeding Up Overseas Expansion, Innovative Drug Companies Approaching Earnings Turning Point,” 2026.3.9)

In 2026, the overseas expansion of domestically produced innovative drugs continues to heat up with strong momentum. Data from Pharma Magic shows that as of March 6, 2026, the total contract value of BD transactions for Chinese innovative drugs going abroad has reached $56.8 billion, with an initial payment of $3.3 billion. The total contract amount has already reached 41% of the total for 2025, surpassing the full-year level of 2024; the initial payment is equivalent to 46% of 2025. Analysts believe that, based on ongoing BD realizations and pipeline progress, short-term stock price fluctuations have not changed the long-term growth logic of overseas expansion. Under the benefits of domestic engineering talent and policy support, China’s innovative drug exports are a long-term industry trend, and the outlook for continued BD realization in 2026 remains optimistic. (Reference: Dongwu Securities “Pharmaceutical & Biotech Weekly: Two Sessions Elevate Innovative Drugs to Emerging Pillar Industry, BD Overseas Expansion Accelerates in 2026,” 2026.3.8)

Market Side | Foreign Investors “Counter-Cyclically” Deploy via ETFs

In the secondary market, since September last year, the A-share and Hong Kong stock pharmaceutical sectors have entered a correction phase, with significant pullbacks from their 2025 highs. After ongoing valuation digestion, current attention is on cost-effectiveness. According to Wind data, as of March 9, 2026, the Hong Kong Stock Connect Innovative Drug Index (987018.CNI) and the CSI Innovative Drug Index (931152.CSI) have P/E ratios (TTM) of 33.81 and 42.94, respectively. Their historical percentile positions over the past decade are only 21.87% and 50.06%, indicating relatively high valuation. Coupled with improving fundamentals, the innovative drug sector has attracted international investors.

(Data source: Wind, period: March 10, 2016 – March 9, 2026)

Some analysts believe that the profit turnaround for innovative drug companies may be near, with intensive clinical data releases expected throughout the year. Coupled with smooth progress of overseas clinical trials for BD pipelines, they remain optimistic about opportunities in the innovative drug sector. (Reference: Guojin Securities “Accelerating Innovation in Medical Devices, Favorable Development Opportunities for Domestic Leaders,” 2026.3.1)

For long-term investors optimistic about China’s innovative drug prospects, relevant ETFs under Yinhua Fund are recommended:

• Hong Kong Innovative Drug ETF (Code: 159567) and its linked funds (A: 023929; C: 023930)
• Innovative Drug ETF (Code: 159992) and its linked funds (A: 012781; C: 012782)

MACD Golden Cross signals have formed, and these stocks are showing good upward momentum!