China's new Nasdaq-style venue set for Monday trading start

Less than a year after President Xi Jinping first touted the project, China’s new stock venue designed for technology start-ups will start trading on Monday. Twenty-five companies will be part of the launch in Shanghai, out of the more than 100 hopefuls that applied to go public on the platform. Endorsement from top officials helped generate such enthusiasm that the firms raised a combined $5.4 billion (Dh19.8bn), about 20 per cent more than planned. Demand from retail investors has outstripped supply by an average 1,800 times, even as some analysts voiced concern over lofty valuations. One company priced its shares at 171 times earnings. “The first-batch listings are expected to be boosted by investor demand,” said Mark Huang, an analyst at Bright Smart Securities in Hong Kong. “There’s a good chance we’ll see a rush into these stocks due to the limited supply.” Modelled after the Nasdaq Stock Market in the US, the so-called STAR board is China’s latest attempt to avoid losing the next Alibaba Group Holding or Tencent Holdings to exchanges in New York or Hong Kong. It’s also a testing ground for regulators, who have waived rules on valuations and first-day price limits for the first time since 2014. The venue will be the first in China to welcome companies that have yet to make a profit, as well as shares with unequal voting rights. The listing companies include China Railway Signal & Communication Corporation — already listed in Hong Kong — and gastrointestinal equipment maker Micro-Tech (Nanjing). Advanced Micro-Fabrication Equipment, which sells products used to make semiconductors, is the most expensive stock of the batch. Its 171 multiple compares with an average of 53 times for the group, and 33 for similar stocks on other Chinese venues. A handful of stocks linked to the first batch advanced on Friday, showing investor enthusiasm before the new board’s debut. And another two firms joined the queue to list: Amlogic (Shanghai) and Shanghai Friendess Electronic Technology are aiming to raise a combined 2bn yuan (Dh1.06bn), according to their prospectuses. Despite the hype, there are questions about whether the excitement will give way to the lukewarm sentiment that’s blanketing the world’s second-largest equity market. On the other hand, a sustained period of ultra-high demand risks draining funds from other exchanges, where volumes are shrinking. Mainland markets sank earlier this month after China announced the STAR board’s official start date. The Shanghai Composite Index rose 0.8 per cent on Friday. It’s not the first time China has sought to create an alternative venue for smaller companies. The ChiNext board was launched in Shenzhen almost a decade ago with fewer listing requirements than the main venues. The tech-heavy exchange was at the centre of a spectacular boom and bust in 2015 that burnt hordes of novice traders. Officials will be keen to avoid such extreme volatility — the ChiNext remains more than 60 per cent below its peak four years ago. Shares on the STAR board will have no daily price limits for the first five trading days, followed by a 20 per cent cap in either direction. To limit volatility, the venue will feature a mechanism that suspends activity for 10 minutes if a stock moves by 30 per cent and then 60 per cent from the opening price in the first five trading days, a wider band than the rest of the stock market. The STAR board’s launch dovetails with Beijing’s pledge to boost direct financing for companies struggling to raise funds, and has taken on added significance as heightened trade tensions with the US threaten China’s technology supply chain. “It’s one of China’s key strategies to support technological innovation,” said Zhang Yankun, fund manager at Beijing Hone Investment Management. “If investors can get decent returns from these listings, it would attract more money to the sector and help China’s capital market compete with developed markets.”

China's new Nasdaq-style venue set for Monday trading start

Twenty-five companies out of the more than 100 hopefuls that applied will go public on Shanghai's STAR platform