China Asset Management Company has launched a new ETF in Hong Kong providing exposure to locally listed Chinese biotechnology companies.
The fund is the second Chinese biotechnology ETF available in Hong Kong.
The ChinaAMC Hang Seng Hong Kong Biotech Index ETF (3069 HK) has listed on the Stock Exchange of Hong Kong (HKEX) and comes to market with around HK$1.3 billion (approx. US$167 million) in assets under management.
The fund is linked to the Hang Seng Hong Kong-Listed Biotech Index, an index reflecting the performance of HKEX-listed biotech companies, including stocks listed through Chapter 18A rules.
Chapter 18A sets out the additional conditions and disclosure requirements for biotech companies that are unable to list through traditional channels due to failing certain market capitalization, revenue, cash flow, or profit metrics.
Biotech companies listing through Chapter 18A are non-distressed firms with market capitalizations of at least HK$1.5 billion ($200m) at their time of listing. Often these firms are pre-revenue but have at least one core product that has recently secured regulatory approval.
Supportive environment
China’s biotech industry is the second largest in the world, with R&D spending growing at a faster pace than that of the US. It also supported by favourable policies with biotechnology having been identified as a key area in both the Chinese government’s 14th ‘Five-Year Plan’ and its ‘Made in China 2025’ industry development strategy.
Alongside this, Hong Kong has become the largest biotech fundraising centre in Asia and the second largest one worldwide. The city has gathered multiple high-quality and promising Chinese biotech companies.
In the past few years, the number and market value of Chinese biotech companies listed on HKEX have far exceeded those listed in Shanghai Stock Exchange STAR Market and the US NASDAQ stock exchange.
Index methodology
The index utilizes the Hang Seng Industry Classification System to screen for firms classified to the pharmaceuticals, biotechnology, or medical devices industries. These companies are ordered by size with those making up the top 95% by market capitalization selected for index inclusion.
Constituents are weighted by float-adjusted market capitalization subject to an individual security cap of 10%. Rebalancing occurs on a quarterly basis.
As of the end of February, the index contained 45 constituents. Notable positions included WuXi Bio (10.2%), Innovent Bio (9.7%), Ali Health (9.7%), Sino BioPharm (9.5%), CSPC Pharma (7.0%), Hansoh Pharma (4.5%), WuXi AppTec (4.3%), and MicroPort (3.6%).
The fund comes with estimated ongoing charges of 1.52% which includes a management fee of 0.50%. Distributions are sent to investors annually in December.
Biotech momentum
The Hang Seng Hong Kong-listed Biotech Index rose nearly 70.4% in the past year, significantly outperforming the Hang Seng Index which had an increase of 25.9% during the same period, according to Bloomberg data.
Tian Gan, CEO of ChinaAMC (HK) said: “As an experienced ETF issuer, ChinaAMC is honoured to announce the launch of the ChinaAMC Hang Seng Hong Kong Biotech Index ETF on HKEX. We observe strong momentum and huge potential in the biotech industry and this product allows investors to invest in the rapid development of the industry through a low-cost way and reduced risk of investing in a single enterprise.”
Brian Roberts, Head of Exchange Traded Products at HKEX added: “We are delighted to welcome the listing of ChinaAMC Hang Seng Hong Kong Biotech Index ETF on HKEX, which provides investors with a new tool to gain targeted exposure to Hong Kong-listed biotech companies. Hong Kong’s role as a global biotech fundraising hub is creating product development opportunities for ETF issuers to meet investor needs. We look forward to more new-economy listings to further enrich the product diversity of our ETF market.”
Investors seeking Chinese biotech exposure may also wish to consider the Global X China Biotech ETF (2820 HK; 9820 HK) which was listed in July 2019 by Mirae Asset Global Investments. This fund tracks the Solactive China Biotech Index which includes the largest 20 Chinese biotech companies listed in mainland China, Hong Kong, or the US. The ETF houses HK$2.9bn ($390m) in assets and has ongoing charges of 0.68%.