STAR Market adds US$44b on a wild debut 
2019-07-23
TRADING on China’s new Nasdaq-style board for homegrown tech firms hit fever pitch yesterday, with shares up as much as 520 percent in a wild debut that more than doubled the exchange’s combined market capitalization and beat investors’ expectations.
Sixteen of the first batch of 25 companies — ranging from chipmakers to health-care firms — increased their initial public offering prices by 136 percent on the STAR Market, operated by the Shanghai Stock Exchange.
The first day of trade tripped the exchange’s circuit breakers that are designed to calm frenzied activity. The weakest performer leapt 84.22 percent. In total, the day saw the creation of around 305 billion yuan (US$44.3 billion) in new market capitalization on top of an initial market cap of around 225 billion yuan.
Shanghai Mayor Ying Yong said the opening of the STAR Market was a milestone in the development of China’s capital market, a historic breakthrough in the science and technology innovation field and a new path for financial reform and opening-up.
“We believe that with the support of the STAR Market, more sci-tech companies will thrive on this fertile land and make greater contributions to China’s high-quality development in science and technology,” he said.
Mark Leung, CEO of JP Morgan China, said: “The STAR Market is a key part of China’s efforts to enhance the capital market’s capability to serve sci-tech innovation enterprises, raise market inclusiveness and strengthen market functions. It provides issuers with more choices in terms of listing and financing channels, and will play a major role in promoting technological innovation and market-oriented reform of the capital market.”
Eugene Qian, president of UBS Securities, expected it to have a long-term positive impact on the A-share market, as its opening “not only helps tech-innovation companies finance and grow quickly, but also adds momentum to the capital market through the pilot of the registration system.”
The new board focuses on companies in strategic emerging sectors, such as next-generation information technology, advanced equipment, new materials, new energy, energy saving, environmental protection and biomedicine.
Among the 25 companies listed on the new board, 13 are related to next-generation information technology, five focus on new materials, five are high-end equipment manufacturers, and two are in the biological industry.
“A series of new policies for the new STAR board will support sci-tech innovation enterprises to achieve great advances with stronger competitiveness and at a faster speed,” said Yin Zhiyao, founder and chairman of Advanced Micro-Fabrication Equipment Inc China, a STAR-listed company which manufactures equipment used to make microchips.
“The STAR Market will become an important impetus to promote the high-speed development of China’s high-tech industries,” Yin said.
Trading in Anji Microelectronics Technology (Shanghai) Co Ltd, a semiconductor firm, was briefly halted twice as the company’s shares hit two circuit breakers — first after rising 30 percent, then after climbing 60 percent from the market open.
The mechanisms did little to keep Anji shares in check as they soared as much as 520 percent from their IPO price in the morning session. Anji shares ended the day up 400.2 percent from their IPO price, the day’s biggest gain, giving the company a valuation of nearly 242 times 2018 earnings.
Suzhou Harmontronics Automation Technology Co Ltd, in contrast, triggered its circuit breaker in the opposite direction, falling 30 percent in early trade before rebounding. But by the market close, the company’s shares were still 94.61 percent higher than their IPO price.
Wild share price swings had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors.
The STAR Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44 percent on debut on other boards in China. In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20 percent in a day, double the 10 percent daily limit on other boards. Trade volume of the 25 firms reached 48.5 billion yuan (US$7.13 billion).
“It’s a bright start of the STAR Market. The market will adjust by itself to the companies’ true value with experienced investors,” Zhu Bin, chief strategy analyst of the Southwest Securities, said in a note.
To participate in the new market, individual investors must have 500,000 yuan worth of financial assets in their A-share trading accounts, as well as two years’ trading experience.
Regulators last week cautioned individual investors against “blindly” buying STAR Market stocks, but said big fluctuations were normal.
Looser trading rules were aimed at “giving market players adequate freedom in the game, accelerating the formation of equilibrium prices, and boosting price-setting efficiency,” the Shanghai Stock Exchange said in a statement on Friday.
The SSE added that it was normal to see big swings in newly listed tech shares, as such companies typically have uncertain prospects, and are difficult to evaluate. The exchange cited big fluctuations in IPOs shares on Nasdaq and the Hong Kong stock exchange, in particular singling out recently listed electric car firm NIO Inc and Chinese start-up Luckin Coffee.
SSE said that an index tracking the STAR Market would be launched on the 11th trading day following the debut of the 30th company on the board.
The new shares jumped despite relatively high IPO valuations — the IPOs were heavily oversubscribed among retail investors. The average price-to-earnings (PE) ratio of the 25 firms was 53 times their 2018 earnings. By comparison, the PE ratios of previous IPOs on mainstream Chinese boards were no greater than 23.
Investor focus on the STAR Market in the short term could weigh on the main board in terms of liquidity and attention, said Zhu Junchun, chief analyst with Lianxun Securities.
