Shares on China tech exchange surge up to 520% in trading debut
Shares rocketed by as much as 520 per cent on the first day of trading for Shanghai’s new science and technology-focused equities market in what the Chinese government will hope is a further sign of its resilience in the face of its trade war with the US.
The Star Market was announced by president Xi Jinping less than a year ago and has been billed as China’s answer to Nasdaq, the tech-dominant stock market in the US.
Beijing hopes the new board will encourage investment in domestic tech companies and also lead to more Chinese businesses listing at home rather than overseas. China is trying to counter pressure on its technology industry from Washington, which earlier this year blacklisted the country’s sector champion, telecoms equipment maker Huawei.
More than 140 technology and science companies have signed up to list their stocks on the new facility run by the Shanghai Stock Exchange, aiming to raise a total of Rmb128.8bn ($18.7bn).
The first 25 companies to list on the exchange on Monday had raised Rmb37bn collectively through the issuance of new shares that closed their first trading day on Star between 84 per cent and 400 per cent higher from where they had priced. The average gain was 140 per cent.
Among the companies to list on day one were chipmakers Anji and Montage Technology, which rose as much as 520 per cent and 285 per cent, respectively. Four of the 25 stocks were up more than 200 per cent at the close, with 16 stocks up more than 100 per cent.
The sharp rises are unusual in China, where stock movements are normally capped within a range defined by authorities. The Shanghai and Shenzhen exchanges permit main board stock prices to move 44 per cent on their first day of trading, after which they are limited to moves of up to 10 per cent. By contrast, the Star Market has no limits on share price movements during a stock’s first five days.
The Star Market’s first day gains come despite rules intended to limit the influence of China’s retail investors, who account for about 80 per cent of turnover on the Shanghai Stock Exchange and are often more heavily influenced by momentum trading than institutional investors.
Star allows investors to trade who have an account balance of at least Rmb500,000 ($73,000), and who have two years of trading history.
Mr Xi unveiled the new board in November to “support Shanghai in cementing its position as an international financial centre and a hub of science and innovation”.
The move came against the backdrop of the US-China trade war, with Washington threatening to increase tariffs on a range of Chinese imports. Mr Xi and US president Donald Trump agreed to resume negotiations at last month’s G20 Summit.
Analysts said the government’s explicit backing of the new tech board is seen by investors as a key pull.
“The government is backing it and investors are speculating that the government will support it,” said Margaret Yang, market analyst with CMC Markets Singapore.
However, Ms Yang warned that this may not be enough to guarantee the market’s long-term prospects. “This game can keep going for at least a few days but in the long run it’s hard to say,” she said.
The new board is unique in China in the enticements it offers to attract tech companies to list, including allowing dual-class shares that preserve founders’ control. Investors are also permitted to short sell individual stocks, a practice forbidden elsewhere in the country’s markets.
Trinh Nguyen, a senior economist at Natixis, said Beijing wanted to show domestic tech companies its capital market reforms would increase the role of the market in setting share prices as opposed to government policy.
Beijing wanted to “convince mainland tech stars that China capital market reform has their interest at heart”, she said.