China’s Star Market gets off to a flying start
The opening day of China’s new technology-focused equities market – the Star Market –delivered some sensational results. Designed to be a Chinese version of Nasdaq, the USA’s main tech stock market, based in the Shanghai Stock Exchange, Beijing hopes that the Star Market will encourage investment in domestic technology and lead to more major Chinese companies listing at home rather than abroad.
This focus on strengthening home grown markets is important in the context of the ongoing trade war with America, and should also provide some insurance for Chinese companies worried they may be blacklisted abroad in the same manner as Huawei. So far, the outlook seems good.
More than 140 companies listed on day one and aimed to raise Rmb128.8bn (approximately US$18.7bn) between them. The first 25 companies to list raised almost a third of that amount, and the average gain on day one was a barely believable 140%.
It is unusual to see such large rises in China as both the Shanghai and Shenzhen exchanges permit movement of no more than 44% on the first day of trading, and no more than 10% a day thereafter. This acts to provide stability and limit the potential for either a bubble forming or a company going into freefall. In contrast, the Star Market has no limits on share price movement during a stock’s first five days.
Two of the major beneficiaries of this, Anji and Montage Technology, secured huge rises of 520% and 285% respectively, demonstrating the potential power of the Star Market. If this continues it is hard to see why Chinese companies would list anywhere else.
President Xi Jinping, who launched the new market in November 2018, said its purpose was to “support Shanghai in cementing its position as an international financial centre and a hub of science and innovation.”
Whether the Star Market will be a long-term success remains to be seen, but the opening signs are good. It is likely that investors are betting that the government will continue to support it and act as a guarantor. This seems like a fairly safe gamble. If President Xi gives something his explicit backing, you can generally assume that it will be around for a while.