Cross-Market Asset Allocation Strategy Analysis for Hong Kong Innovative Drugs and U.S. Biotechnology

From Q2 to Q3 2025, the Hong Kong innovative drug sector recovered rapidly driven by policies, capital and commercialization progress. As of November 19, its index rose by approximately 110.8% cumulatively from the阶段性 low on April 9, and many new stocks surged significantly upon listing, reflecting the market’s high recognition of positive clinical progress, improved medical insurance payment chains and overseas strategies [1]. In contrast, U.S. biotechnology indices (such as NBI, IXV, SPSIBI) have shown volatile performance since Q3 2024, falling by approximately 1.9%, 8.0% and 2.0% respectively in 2025, mainly affected by tight liquidity, R&D distortions in some star projects and uncertainties in regulatory and policy expectations [2]. The performance of the two markets has formed a differentiation of “Hong Kong hot, U.S. stable + recovery”, and valuation differences have widened accordingly: the forward price-to-sales ratio of the Hong Kong biotechnology sector has fallen from 18.8x in the middle of the year to 17.3x in November (vs. approximately 8.7x in the same period of 2024), while some leading innovative drug companies have begun to face the pressure of volume-for-price in commercial insurance/medical insurance [3].

1. Institutional Drivers and Endogenous Growth Model
   : Behind the short-term gains of Hong Kong innovative drugs is the systematic加码 at the national level from approval, payment to exports, leading to the rewriting of market expectations for some targets with “high value + strong dependence + large growth”. U.S. biotech, due to the decline in financing costs and structural optimization of R&D, is entering a more “de-bubble, de-expectation” phase. Investors need to start from “endogenous cash flow growth + moat expansion”, distinguish the cycle and structural characteristics of the two markets, and avoid further amplifying profit fluctuations due to valuation premiums.

2. Differentiated Factor-Driven Allocation Weights
   :
   • Hong Kong innovative drugs
     are suitable for including leading companies with “accelerated commercialization progress + policy support + clear international cooperation” or companies with “existing revenue base + quantifiable R&D pipeline” as timing allocations for “growth-type” assets, focusing on controlling valuation risks and uncertainties in medical insurance pricing.
   • U.S. biotech
     , due to improved liquidity conditions, released R&D failure risks and spillover valuation recovery, makes assets with “predictable revenue + high moat in European and U.S. markets” more suitable as the core of long-term allocation. Especially under the judgment framework of “high value (innovative clinical + marketable drugs) + strong dependence (on original research/platform capabilities) + large growth (global commercialization)”, selecting targets with sustainable self-financing/cash flow improvement capabilities is more resilient.

3. Dynamic Hedging and Valuation Drivers
   : Against the backdrop that the valuation level of the Hong Kong sector is significantly higher than the historical average and policy drivers are easily over-rendered by market expectations, investors can moderately reduce holdings or adjust stocks with insufficient “value + growth” overlap, take out part of the “Hong Kong enthusiasm” gains and shift to U.S. biotechnology with lower valuations and more diversified risks, thereby reducing portfolio concentration fluctuations. Conversely, when the Hong Kong market experiences a correction after profit realization, investors can use events such as “high-quality clinical data” or “international cooperation” to increase positions again, forming a cross-market time distribution.

1. Build Dual-Core Baskets
   :
   • Hong Kong side: Screen pharmaceutical companies with clear commercialization paths, quantifiable short-term revenue (e.g., multiple projects entering EOP2/3, covered by medical insurance), and strictly conduct stress tests using “cash flow/pipeline milestones vs current valuation”.
   • U.S. side: Focus on biotechnology, medical services and platform-type companies that can achieve high net profit margins in the U.S./global markets (e.g., with long-term contracts/repeatable revenue models), and use the current low price-earnings levels to capture potential “value regression” opportunities.

2. Cross-Market Momentum and Event-Driven
   :
   • Define with “endogenous value release events” (such as key clinical data release, overseas licensing, alliance cooperation, medical insurance inclusion), and adjust the momentum positions of Hong Kong and U.S. markets respectively.
   • Set trigger points: If the Hong Kong innovative drug index falls below key support with negative regulatory or medical insurance news, switch part of the funds to U.S. targets with “stable clinical pipelines + sufficient cash reserves”; conversely, when U.S. markets are overly suppressed due to R&D backwardness or regulatory uncertainty, use events of “valuation retracement + policy利好” in Hong Kong as rebalancing opportunities.

3. Risk Control and Valuation Monitoring
   :
   • Continuously track cross-market capital flows, financing conditions and macro interest rate dynamics. If the valuation ratio (P/E and P/S of similar biotech in Hong Kong/U.S.) is significantly higher than the historical average, hedge part of the valuation re-contraction risk through cash or hedging tools (such as gold, medical ETFs).
   • Establish a “R&D milestones vs market expectations” matrix, set dynamic profit-taking and re-evaluation mechanisms for high-valued stocks, ensuring the portfolio always revolves around “visible endogenous value”.

Under the current pattern of structural differentiation between Hong Kong innovative drugs and U.S. biotech, cross-market allocation should focus on long-term endogenous value growth: select leaders with “high value + strong dependence + large growth” characteristics, combine dynamic event-driven and valuation monitoring to form a dual-core strategy covering policy dividends and market recovery, thereby maintaining directionality and improving resilience in the “market fog”. When necessary, the deep research mode can be enabled on the Jinling AI platform to obtain richer clinical, financial and industry segment data, providing further quantitative and factor-level support for such cross-market strategies.

[1] Sina Finance - “2025 Technology and Capital Report | Innovative Drug Boom” (https://finance.sina.com.cn/jjxw/2025-12-14/doc-inhaueci2996739.shtml)
[2] Pharmcube - “2025H1 Healthcare Investment and Financing Trend Deep Analysis” (https://www.pharmcube.com/newsLibrary/detail?id=30fb44f2e2e0b80a3ace802c02835cde)
[3] AASTOCKS - “2026 Hong Kong Market Investment Outlook: Stormy” (https://www.aastocks.com/marketcomment/pdf/159591.pdf)