What’s the first thing that comes to your mind, when you hear the word “STAR Board”?
Probably, its related to the Rupert Murdoch founded Star Channels or something that is very famous. If that was your guess, then you should read through this just to find out that your guess was wrong.
China has been famously infamous for adopting/copying various western ideas and making a Chinese version. For e.g.:1) Facebook became Xiaonie2) Iphone became Hiphone3) Starbucks became Sunbucks4) Walmart became Wumart5) Disneyland became Shinjinghan
So what was the next rip off? After making Chinese versions in all possible sectors, next was adoption in the financial world where, NASDAQ became STAR Board.
What is STAR Board?
The idea behind the board is to encourage investment in domestic tech innovators, ensuring they have resources to develop and also have an incentive to list in the home country. Also, to create a market showcasing some of China’s most promising tech companies, all with the goal of catching up to America’s Nasdaq and be tech-heavy like Nasdaq. About four million qualified retail investors with no less than 500,000 yuan in investment capital have registered to trade shares on the new market.
The technology innovation board at the Shanghai Stock Exchange, created a Chinese version of Nasdaq which debuted on 22nd July,2019. This is called STAR Market an abbreviation for Science and Technology innovation boARd.This plan to create the new board was announced by President Xi Jinping in early November. The STAR Market is positioned to support six high-tech industries, including next-generation IT, advanced equipment, new materials, new energy, energy conservation and environmental protection, and biomedicine. It was also to reduce the dependency on foreign money and technology, and this was campaign that intensified in the back drop of the trade war. About four million qualified retail investors with no less than 500,000 yuan in investment capital have registered to trade shares on the new market.
Which Companies Got Listed?
More than 140 technology and science companies across China signed up to list their stocks on this new facility. However, 31 companies won approval to list and 25 of them obtained registration approval from the Securities Regulatory Commission and got listed and began trading.
None of the companies that debuted is particularly well-known outside China.
How is it different this time?
Unlike the previous stock trading venues in China(like the ChiNext) i.e. main boards at Shanghai and Shenzen exchanges, the sci-tech board is a breeding ground for major listing reforms. The new board reforms were based on on concepts found in the U.S. and Hong Kong markets to align with global peers and were as below:
- It streamlined the application process and gave issuers and investors greater control over the pricing and timing of initial public offerings.
- Had no limit on the ratio of a share price to a company’s earnings at the time of listing.
- Allowing to list companies that are not making profits or list before they make any money if they fulfil other criteria.
- Allowing listings of companies with dual-class shares (such structure is popular with the tech companies) or weighted voting rights
- No daily price limits for the first five trading days, followed by a 20% cap in either direction. To limit volatility, it features a mechanism that suspends activity for 10 minutes if a stock moves by 30% and then 60% from the opening price in the first five trading days. These limits are wider than those otherwise enforced by Chinese exchanges. The STAR board’s launch dovetail.
- It adopted a registration based IPO system as against the traditional approval based IPO registration to ease the vetting process and become more market oriented.
What happened on listing?
- All 25 debutants on Shanghai’s new Star Market finished the first day’s trading with gains of at least 84 per cent.
- Their combined trading volume was 48.5 billion yuan ($7.1 billion), or about 13% of the total for the entire Shanghai Exchange.
- The IPOs were 1,690 times oversubscribed, and raised a total of 37 billion yuan ($5.4 billion), and their average trailing P/E ratio is a hefty 53.4 times earnings.
- The biggest opening day gainer, up 400%, was Anji Microelectronics Technology (Shanghai) Co., a maker of semiconductor products.
- However, on the second day of trading All but four companies of the 25 stocks listed on the market fell as investors took profits from opening day gains, erasing about 9 per cent of the total market capitalization.
Even though the Star Board is headed to a good start and amazing response from the investors a lot of questions remain unanswered like:
- Will this euphoria continue or not?
- Will Star board suffer the same fate as Chi Next or will it be the next NASDAQ ?
- Will it be able to commit towards easing the process of listing as stated during the launch?
- Will the next Alibaba or Tencent Holdings be first listed on star board?
- Will Alibaba and Tencent, other big Chinese tech companies such as Baidu (BIDU), JD.com (JD), Xiaomi and Pinduoduo list next on star board?
As it is rightly said that “Only time will tell what future holds”, we will have answers to the above questions with passage of time.