The Hong Kong office of South Korean asset manager Mirae Asset Global Investments has launched two new Chinese equity ETFs which provide exposure to the themes of biotechnology and cloud computing.
JH Rhee, Chief Executive Officer of Mirae Asset Global Investments (Hong Kong).
The Mirae Asset Horizons China Biotech ETF and Mirae Asset Horizons China Cloud Computing ETF are the first of their kind to list on the Hong Kong stock exchange.
Each comes with an expense ratio of 0.68%.
The funds are linked to the newly launched Solactive China Biotech Index and Solactive China Cloud Computing Index respectively.
Each index consists of firms that are headquartered in China or Hong Kong and listed on at least one of the following exchanges: Hong Kong stock exchange; Shanghai or Shenzhen stock exchanges (and available through the Stock Connect programme); NYSE; or Nasdaq Exchange.
The methodology selects the 20 largest stocks which, according to FactSet, belong to either the biotechnology or cloud computing sectors. Constituents are weighted by free float-adjusted market capitalization and capped at 6%. Reconstitution and rebalancing occur semi-annually.
To reduce unnecessary turnover, existing constituents will only be removed from their index if they fall below the 25th largest stock within their respective sectors.
JH Rhee, Chief Executive Officer of Mirae Asset Global Investments (Hong Kong), commented, “Disruptive themes form a key pillar of Mirae Asset Global Investments’ efforts to develop an ETF platform that is client-centric and truly built around investors.
“The addition of Mirae Asset Horizons China Biotech ETF and the Mirae Asset Horizons China Cloud Computing ETF are built on Mirae Asset’s rich heritage as a leading ETF innovator, which has sought to give investors flexible, cost-effective and diversified exposure to exciting new emerging industries and asset classes.
“Previously the domain of VC and private equity investors, the launch of the two ETFs marks the opening of the biotech and cloud computing sectors to the wider investor community, allowing them to share in the enormous potential of these two industries.”
Wanyoun Cho, Head of Asia ETF at Mirae Asset Global Investments (Hong Kong), added, “Both Chinese biotech and cloud computing industries are ripe for development, particularly as funding and patents grow within the biotech space, and more companies in China embrace cloud computing technology.
“With the benefit of multiple stocks across both industries, the ETFs will provide investors in Hong Kong with broad and diversified exposure to the positive tailwinds of both the biotechnology and cloud computing sectors.
“Given the wide range of opportunities across different sectors of the Chinese market, the ETFs are a great addition to the growing offering of thematic investments targeting China and will contribute greatly towards enhancing investor interest in exciting new sectors in this dynamic and fast-moving market.”
Both funds have been listed with Hong Kong dollar and US dollar trading share classes.
Mirae Asset Horizons China Biotech ETF; HKD – 2820 HK; USD – 9820 HK.
Mirae Asset Horizons China Cloud Computing ETF; HKD – 2826 HK; USD – 9826 HK.
Industry Outlook
According to Mirae’s research division, Chinese biotechnology stocks are set to benefit from the ‘Made in China 2025’ industrial strategy, under which the sector has been earmarked for development.
Providing additional tailwinds will be an improving regulatory framework in the country, which includes clearer guidance for biosimilar developers and changes to the drugs approval process.
Mirae believes the prospects for the sector are bright, highlighting that the compound annual growth rate (CAGR) of healthcare capital has been 132% between 2013 and 2017, according to Credit Suisse research. Additionally, the number of biotechnology patents granted in China rose from over 1,000 in 2006 to more than 6,000 in 2016 – surpassing the US and making up 27% of the global total.
“There is sheer force of innovation in life-science and biotech, with a lot of revenue being put back into R&D,” said Timo Pfeiffer, Head of Research at Solactive. “Hong Kong has become a key hub for Biotech IPOs, and our new index takes advantage of this emerging center of innovation.”
Turning to cloud computing, research from Gartner estimates the sector to grow by 17.5% globally in 2019, resulting in total revenue of $214 billion.
In China, however, the cloud computing market is still nascent, representing only 3% of China’s enterprise IT market. China’s GDP is at 70% of the US’s, but its cloud software industry only accounts for 3% to 10% of the size of US’s, indicating plenty of room to grow.
Additionally, Mirae notes that the sector is expected to experience significant growth on the back of supportive government policies that promote and subsidize the adoption of cloud technology.
Pfeiffer added, “Cloud computing revolutionized the way in which we use, store, and access our data. Personally, it gives me – in both my professional and private environment – the opportunity to work remotely or access my favourite music without having to worry about local storage. Asian companies picked up quite a pace in the cloud computing trend within the last few years. Our Solactive Chinese Cloud Computing Index leverages on that momentum, giving investors exposure to a fast-growing market.”