China’s speculative Star board creates waves with investors

Author: Lindsey Boycott

Estimated read time: 3 minutes

Publication date: 13th Aug 2019 14:25 GMT+1

Anji Microelectronics, a Shanghai-based business that makes semiconductor products, started out their Monday morning in relative obscurity. They were one of 25 companies that debuted on China’s Science and Technology Innovation Board (STAR) – a NASDAQ-like equity market for Beijing’s best and brightest – that opened on July 22. By the end of the day, the market closed with Anji claiming top performing spot with a 400 percent jump in share price.

Chinese investors welcomed the new market with open arms – and open wallets. A flurry of trading activity on launch day contributed to STAR’s stratospheric gains with stock prices surging 140 percent across the board. At closing on that first day, about $7.1 billion (48.5 billion yuan) worth of shares had been traded.

“Gains were much stronger than expected, either due to unreasonable IPO pricing or speculative trading,” Zhu Junchun, a Shanghai-based analyst with Lianxun Securities Co., told Bloomberg about Star’s opening day. “It’s going to be a liquidity game in the first half year or one year of trading. Judging by the trading activity and gains on the board, it’s definitely a success.”

Interest in the tech-inspired Star market has been growing. Since Friday, over 151 companies have applied to list on China’s most speculative board and two more companies – multimedia software company Amlogic and control system manufacturer Shanghai Friendess – opened on it on Thursday. Both saw 200 percent plus jumps in stock prices the initial day of trading.

On average, listed companies have been trading at a 20 percent gain over their initial offering for the first fifteen days of trading. Thursday’s final hour of trading broke up that three-week winning streak, however, as investors beat a hasty retreat from China’s sci-tech innovation board – closing down 8.7 percent that day.

“The Star market has become a game of hot potato,” said Zhang Yankun, a partner at Beijing Hone Investment Management Co. “As stocks on the main board oversold today, some of the investors who reaped generous gains from the Star market could be cashing out and preparing to shift back to the main board.”

Beijing’s newest venue is viewed as a special project for President Xi Jinping who launched it as part of his larger goal to keep China’s tech innovators like Alibaba and Tencent Holdings closer to home. It was first proposed by the president in November 2018 and launched a short nine months later. STAR represents a big departure from how the markets in Shanghai and Shenzhen are managed. Typically, regular A-share IPOs are approval based all new offerings are price-capped at 23 times their earnings and their largest allocations reserved for retail investors.

Conversely, STAR-listed IPOs are registration-based and applicants undergo a more conventional process of assessing investor demand for shares prior to determining a company’s market valuation. The majority of shares are allocated to institutional investors and multi-tiered share structures are permitted. Regulators have also relaxed restrictions on a company’s three-year profitability requirement.




Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.