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Explore China's Booming Biopharma Space With This New ETF

Sanghamitra Saha
Inside the new China bio-pharma ETF and its possibilities.

Loncar Investments along with Exchange Traded Concepts has come up with a marvel ETF targeting China’s booming biotech industry — Loncar China BioPharma Index ETF CHNA.

“China is the world's second-largest market for pharmaceuticals and the fastest emerging market for the sector. A burgeoning middle-class and rapidly-aging society presents vast opportunities for the industry,” per CNBC.

This makes it understandable why it was necessary to have a pureplay ETF on the sector. The launch of the fund happened at an opportune moment as the Hong Kong Exchange (HKEX) recently changed its listing rules to let non-revenue generating biotech firms list for the first time.

China has one of the fastest growing healthcare markets globally with a five-year compound annual growth rate of 17% versus 4% in the United States and negative 2% in Japan, per the source.

Inside CHNA

The fund looks to offer exposure to a portfolio of companies hailing from China's biopharmaceutical industry. The fund invests in pharmaceutical biotech companies, drug manufacturers, diagnostics companies and service providers that are associated with China’s drug industry.

The fund reflects the performance of the Loncar China BioPharma Index, which is “the first and only stock market index available to the public that follows China’s biopharma industry from both its regional and U.S. listed perspective.”

The fund has close to 30 securities in total. Wuxi Biologics (5.24%), Sinopharm Group (5.08%) and Shanghai Fosun (4.89%) hold the top three positions of the fund. The product charges 79 bps in fees.

How Does It Fit in a Portfolio?

The Chinese biopharmaceutical and healthcare industries are thriving with opportunities right now. China is a big market with about $1.26 billion population, which has always been a point of interest for both Chinese and Western providers of drugs (read: Health Care ETFs Outperforming: Will the Rally Last?).

According to health-care information company IQVIA, China was the world's second-largest national pharmaceutical market in 2017 — worth $122.6 billion — with the potential to be a $145-$175 billion market by 2022, per an article published on CNBC.

The sector has become venture capital’s darling. At a time when venture inflows into other tech sectors have decelerated, biotech has already raised about $32 billion. About $7.8 billion had been invested in the sector in the first half of the year, per Beijing-based investment bank China Renaissance, as quoted on Financial Times.

Per a source, China has moved ahead “from a system with no healthcare insurance and a hospital-centric healthcare system to the introduction of healthcare insurance and a more diversified, modern system of providing patient care.” 

As far as regulatory hurdles are concerned, there is growing acceptance for the Chinese regulatory system now in China and overseas. Cross border R&D deals in connection with Chinese biotech companies have gone up 70% since 2012, per Financial Times.

Last but not the least, per the issuer of the fund, talks are doing the rounds that HKEX's new listing rules will open opportunities for China's growing biotech industry, resulting in a whirlpool of biotech IPOs. All these should go in favor of the newbie.

Will It See Success?

The fund should not face cut-throat competition in amassing investors’ assets as the space is still less-explored. However, KraneShares MSCI All China Health Care Index ETF KURE focuses on the same concept. This fund tracks the equity market performance of Chinese companies engaged in the health care sector. The fund charges 79 bps in fees (see all healthcare ETFs here).

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