STAR Market off to a flying start

The first batch of 25 stocks listed on China's new sci-tech board on the Shanghai Stocks Exchange, known as the SSE STAR Market, began trading on Monday.

Shanghai Mayor Ying Yong said the opening of the STAR Market was a milestone in the development of China's capital market, a historic breakthrough in the science and technology innovation field and a new path for financial reform and opening-up.

"We believe that with the support of the STAR Market, more sci-tech companies will thrive on this fertile land and make greater contributions to China's high-quality development in science and technology," he said at the opening ceremony.

Mark Leung, CEO of JP Morgan China, said: "The STAR Market is a key part of China’s efforts to enhance the capital market’s capability to serve sci-tech innovation enterprises, raise market inclusiveness and strengthen market functions. It provides issuers with more choices in terms of listing and financing channels, and will play a major role in promoting technological innovation and market-oriented reform of the capital market."

Eugene Qian, president of UBS Securities, expected it to have a long-term positive impact on the A-share market, as its opening "not only helps tech-innovation companies finance and grow quickly, but also adds momentum to the capital market through the pilot of the registration system."

Sun Lijun, co-head of the firm’s corporate client solutions, said: "UBS Securities places great emphasis on the STAR Market. We hope to bring UBS's global investment banking and market-oriented pricing experiences to contribute to the development of the STAR Market." 

The brokerage has sponsored biopharmaceutical HaoHai Biological Technology to list on the STAR Market, and is also working on a pipeline for other STAR Market-related IPO projects.

The Nasdaq-style board focuses on companies in strategic emerging sectors, such as next-generation information technology, advanced equipment, new materials, new energy, energy saving, environmental protection and biomedicine.

Among the 25 companies listed on the new board, 13 are related to next-generation information technology, five focus on new materials, five are high-end equipment manufacturers, and two are in the biological industry.

"A series of new policies for the new STAR board will support sci-tech innovation enterprises to achieve great advances with stronger competitiveness and at a faster speed," said Yin Zhiyao, founder and chairman of Advanced Micro-Fabrication Equipment Inc China, a STAR-listed company which manufactures equipment used to make microchips.

"The STAR Market will become an important impetus to promote the high-speed development of China's high-tech industries," Yin said.

Stocks of all the 25 companies soared by more than 84 percent, with 16 companies posting gains of over 100 percent at close. Shares in Anji Technology Co, a company in the semiconductor industry, skyrocketed as much as 520 percent before trimming those gains a little to end the day with a 400.15 percent surge, making it the biggest gainer.

Wang Yuxiang, chairman of Beijing PIESAT Information Technology Co, which specializes in the research and application of satellite technology, said he was satisfied with the surging stock price at the opening, and the company will use the funds raised to further promote research and development.

Trading in some shares had to be temporally halted for 10 minutes, under new market rules, to “cool down” after surging 30 percent.

That was in contrast to the mainstream Shanghai trading board, where price gains are capped at 44 percent on debut days and trading swings are limited to 10 percent a day for the duration of trading. The no-limit price will last for the first five trading days, following a 20 percent daily cap, according to the rule of the STAR Market.

Trade volume of the 25 firms reached 48.5 billion yuan (US$7.13 billion). 

“It’s a bright start of the STAR Market. The market will adjust by itself to the companies’ true value with experienced investors,” Zhu Bin, chief strategy analyst of the Southwest Securities, said in a note.

To participate in the new market, individual investors must have 500,000 yuan worth of financial assets in their A-share trading accounts, as well as two years’ trading experience.

China Railway Signal & Communication Group’s market value hit 130 billion yuan on Monday to become No. 1 by market value among the 25 firms. The company, which offers communications systems for railway networks, jumped 109.7 percent to close at 12.27 yuan. 

The new shares jumped despite relatively high IPO valuations — the IPOs were heavily oversubscribed among retail investors.

The average price-to-earnings (PE) ratio of the 25 firms was 53 times their 2018 earnings. By comparison, the PE ratios of previous IPOs on mainstream Chinese boards were no greater than 23.

Compared with PE, investors should focus more on a company's research spending and innovation, which represents long-term development, analysts said. 

ArcSoft, which offers AI services and solutions, spends about 32 percent of revenue on research, the highest among the 25 firms. It jumped 127 percent to 65.55 yuan on Monday.