Market Outlook: China’s Answer to the Nasdaq Starts Trading

China’s answer to the Nasdaq, the Shanghai Stock Exchange (SSE) Science and Technology Innovation Board 50 Index or STAR Market started trading on Monday (22 July).
STAR currently has 25 companies, which include firms in the biology and medicine, semiconductor, new energy and other emerging industries space, as constituents.
The index’s opening-day gains surprised the market, with The Wall Street Journal reporting that the 25 companies in the index ended the day showing gains of between 84% and 400%. According to The Telegraph, a semiconductor firm, Anji Microelectronics Technology’s share price rocketed 520% on the day, while Zhangjiang Hangke Technology, a battery testing equipment manufacturer, soared by c. 120% before closing c. 100% higher on Monday. Of the 25 counters, 24 were listing for the first time.
The index was launched before the number of companies had reached the required 50, because the SSE wanted to “gauge the board’s overall performance as soon as possible.”
The SSE said that once the requirement of 50 stocks have been reached, the index will not be adding any more components but will instead be adjusting its composition regularly “according to market cap and liquidity rules.” An index tracking the STAR market will be launched “in the coming weeks.”
The venue’s registration-based system is modelled after exchanges such as the Nasdaq and it reportedly takes c. 70 days for the whole process. This is a far shorter timeframe compared to the lengthy listing process Chinese companies have to go through which could reportedly take, on average, up to 36 months. Foreign companies cannot list on the market.
President Xi Jinping unveiled the initiative only eight months ago, saying China will be encouraging its companies to become less dependent on foreign money and technology. The campaign to launch STAR intensified because of the trade war with the US and the Trump administration posing restrictions on Chinese global smartphone manufacturer, Huawei. It is also seen as an effort by China to revitalise a slowing economy. Beijing hopes STAR will entice large Chinese companies such as Alibaba and Tencent to return from stock markets in New York and Hong Kong.

Written exclusively for Moore Stephens by Anchor Capital