China Launches STAR Market, a NASDAQ-Style Stock Exchange

The Science and Technology Innovation Board, or “STAR Market," was created to improve the credibility of China's volatile stock market.

22.07.2019 | by Reve Fisher
Photo by Hyunwon Jang on Unsplash
Photo by Hyunwon Jang on Unsplash

As the NASDAQ Stock Exchange has launched some of the most successful tech companies in the world, China’s new equity board is hoping to accomplish similar feats.

Trading on the Science and Technology Innovation Board, otherwise known as the STAR Market, began today in Shanghai. Operated by the Shanghai Stock Exchange, which is the fourth largest stock exchange in the world by market cap, the STAR Market is aiming to address investor concerns like market volatility and lack of governance and build credibility in the Chinese stock market.

In the STAR Market’s new registration system, companies are required to disclose their earnings and operations in their initial public offering (IPO) applications. The Shanghai Stock Exchange will also look over the companies’ documentation before allowing them to be listed in the STAR, and the China Securities Regulatory Commission will review the IPO documents to ensure companies can sustain their earnings growth after listings. Although regulators will allow the market to decide the worth of the companies, the China Securities Regulatory Commission will have a final say on the pricing of shares.

“The launch of the new board is a fresh sign China has shifted its focus from quantity and pace to quality in driving economic growth,” said Yu Peihua, general manager of mutual fund AXA SPDB Investment Managers, as reported by the South China Morning Post. “China is highlighting the role of the capital market in bolstering technology companies, and encouraging them to conduct technological innovation.”

This is the most independent market of its kind in China, as Chinese startups will have the chance to go public without needing approval from a government regulator. Companies that have yet to report a profit will also be allowed to be listed. However, prerequisites for the investors are a bit more stringent; Chinese traders are required to have at least two years experience and at $103,000 in their trading accounts to access the STAR Market.

The STAR Market opened with a list of 25 tech companies in sectors ranging from artificial intelligence to biotechnology, chosen from an applicant pool of 140 entities. Every company experienced gains of at least 84 percent by the end of the day, with average gains of 140 percent. Shares for Anji Microelectronics, a company that manufactures semiconductors, experienced the most success; trading opened 287 percent higher than the IPO price, shot up to 500 percent and ultimately settled at 400 percent of the IPO listed price by the end of the trading day.

According to CNN, the success of STAR’s first day of trading has created some new billionaires, including the founders of Suzhou HYC Technology and Zhejiang Hangke Technology.

Stocks on the STAR Market were worth an average of 120 times earnings by the end of the first day on the exchange, whereas companies listed on the NASDAQ and Shenzen Stock Exchange tend to be worth about 24 times earnings.

“This [surge] is crazy,” said Ronald Wan, chief executive of Partners Capital International in Hong Kong. “But it’s already overdone. I don’t think such gains can last long. It’s way too speculative.”

However, experts expect major tech companies to continue taking their businesses overseas, as China maintains strict capital controls. In addition, the STAR Market is China’s third attempt in the past decade to create an equity market, after the Shenzhen Stock Exchange’s ChiNext in 2009 and China’s National Equities Exchange and Quotations (NEEQ, also known as the Third New Board) in 2013; in 2015, ChiNext experienced a 21-day, 42-percent plunge and has yet to recover.

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