March 8, 2021

 

China's hog breeding ETF debuts on Shenzhen Stock Exchange

China's first hog breeding exchange traded fund (ETF) was launched on the Shenzhen Stock Exchange on March 5, the first of three tied to China's growing and steadily recovering swine industry, Reuters reported.

 

The first funds tracking the CSI Livestock Breeding Index includes Penghua Fund Management Co's CSI Livestock Breeding ETF, plus similar funds to be listed by Guotai Fund Management Co and Ping An Fund Management Co. The index consists of listed swine breeders, swine feed suppliers, and vaccine producers.

 

Swine producers in China benefitted from huge profits in 2020 after an African swine fever outbreak in the country pushed pork prices to record highs. These producers are now investing in new industrialised swine breeding facilities to rebuild herds, swapping away traditional small-scale farms.

 

Share prices of major China swine and feedstock producers such as Muyuan Foods, Jiangxi Zhengbang Technology, and New Hope Liuhe have outperformed spot hog prices in Shandong, a top swine producing province, and national pork prices since 2018.

 

Liang Xing, the fund manager for Guotai's ETF, said there remains a gap between the industrialization of the domestic industry and developed countries, so there is a huge potential growth space for the industry.

 

Qian Jing, the proposed fund manager for Ping An's ETF, upcoming reforms are projected to boost China's livestock industry above China's broader agriculture sector.

 

Low-cost investment funds like ETF, which typically track an index and trade like stocks on exchanges, have seen a rise in popularity in China among retail investors seeking exposure to specific industries.

 

A live hog futures contract was launched in China at the beginning of this year, but it remains too large for most retail investors to trade at 16 tonnes per lot. However, China's pig-breeding focused ETFs are more accessible to the retail investor community.

 

The three ETFs raised just over RMB 1 billion (~US154.53 million; RMB 1 = US$0.15) during their subscription. This wasn't particularly large, but the quick uptake shows strong investor interest in companies rebuilding pork supplies in the biggest pork consuming country in the world.

 

Penghua, Guotai, and Ping An opened their ETFs in February for subscription, with Penghua ending its fundraising period one week earlier after reaching the required units and subscribers ahead of schedule to protect investors' interest.

 

Penghua raised RMB 372.6 million (~US$57.58 million), Guotai raised RMB 513.5 million (~US$79.35 million) and will list on the Shenzhen exchange on March 8, while Ping An raised RMB 225.2 million (~US$34.78 million). Ping An has not announced a listing date on the Shanghai Stock Exchange.

 

Dong Baizhen, a Beijing-based hedge fund manager, said fund houses sell livestock breeding ETFs as it is a good concept in the backdrop of rising inflation concerns. But Dong said ETFs gains are only in the short- to medium-term and may not be ideal vehicles for long-term strategic investment.

 

Wang Dan, chief economist of Hang Seng Bank China, said there is a risk of African swine fever resurging in the country, which major farms will incur large losses as they have a high density of swine.

 

- Reuters