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Pig and chicken farmers are big winners in China's silicon valley
[HONG KONG] The big stock-market winners in China's technology hub of Shenzhen aren't artificial intelligence and semiconductor companies. They're farmers.
Chicken breeders Shandong Xiantan Co and Shandong Minhe Animal Husbandry Co have climbed around 40 per cent this year through Tuesday, while pig farmer Muyuan Foodstuff Co is up 34 per cent. The Shenzhen Stock Exchange's agriculture index has rallied more than any other sub-gauge in 2019, and is the only one to eke out a gain in the past three years as the city's benchmark slid 22 per cent.
Analysts attribute the more recent gains to the likelihood of higher pork prices as African swine fever dents supply. And while trade tensions with the US have affected the price of soya beans, which are used as animal feed, progress in talks could result in China importing more from America, lowering breeders' costs, said Dai Ming, Shanghai-based fund manager at Hengsheng Asset Management Co.
A pork producer stood out in Hong Kong too, with WH Group Ltd climbing more than 8 per cent over the past three days.
In another boost, the government has promised to support share listing and fundraising by qualified agriculture firms, according to official guidelines.
There may also be a longer-term, structural reason for the bullish sentiment.
"The agriculture sector has had a totally different story to tech firms over the past few years," said Sun Jianbo, president of China Vision Capital Management Co in Beijing. "China is still at the early stage of large-scale farming and, with this trend picking up, the sector's revenue is growing steadily."
Muyuan and Wens Foodstuffs Group Co, another meat producer, have more than doubled their profit since 2014, though they've yet to report 2018 earnings. Wens Foodstuffs has risen 16 per cent in Shenzhen this year through Tuesday, about half the advance by Muyuan, which has driven much of the Shenzhen agricultural gauge's advance over the past three years as it more than tripled in value.
Gains in farming-related stocks have made them much more expensive. The agriculture gauge in Shenzhen trades at about 49 times reported earnings - more than double the broader index - according to data compiled by Bloomberg. Shenzhen's agriculture index rose 0.1 per cent as at 10.43am in the city on Wednesday, while the broader gauge climbed 1.1 per cent.
Meanwhile, tech companies "have seen the business environment worsening," Hengsheng's Mr Dai said. "For example, the smartphone supply chain is seeing intensifying competition and shrinking margins."
After years of breakneck expansion, global smartphone makers are grappling with slowing revenue growth. Apple Inc's Chinese phone shipments plummeted an estimated 20 per cent in the final quarter last year, while Xiaomi Corp fared even worse, research firm IDC said this week.
"Tech stocks bumped into a boom-and-bust cycle over the past three to five years," Mr Sun said. "In the long run, agricultural stocks are still attractive. China has many small family farms, which is inefficient - they will be transformed into large-scale farms in the future."