2024 RT Amination Banner.gif

China Daily

News> Business> Content
Thursday, September 19, 2019, 12:50
China's sci-tech board starts new era for investors
By Zhou Lanxu
Thursday, September 19, 2019, 12:50 By Zhou Lanxu

In this undated photo, an attendee takes a snapshot at the launch ceremony of the STAR Market in Shanghai. (WU JUN / FOR CHINA DAILY)

The initial excitement surrounding the launch of a new market is bound to fade over time, but Shanghai's sci-tech innovation board, or STAR Market, has attracted continued interest from investors since its dazzling debut in late July.

After getting off to a strong start with share prices soaring an average of 217 percent from offer prices in the initial two weeks of trading, the STAR Market's first batch of listed firms retreated later in August and broadly stabilized this month, ending 139 percent higher than offer prices on average on Wednesday.

Turnover has declined but remains high, with about one in 10 floating stocks of STAR-listed firms changing hands on average on Wednesday, topping all A-share sub-markets, according to financial information provider Wind Info.

Overall, the market-oriented reforms on the STAR Market have borne fruit, while more could be done looking forward

ALSO READ: STAR Market to be global game changer

As rationality gradually replaces exuberance, it is the STAR Market's groundbreaking reforms under the trial registration-based initial public offering system that account for investors' continuing interest in the tech board, experts said.

Marked by the debut of the STAR Market, a new era may be dawning for China's 29-year-old A-share market, featuring accelerated market-oriented, law-based reforms and deeper integration with the global financial community, they said.

"Overall, the market-oriented reforms on the STAR Market have borne fruit, while more could be done looking forward," said Eugene Qian, president of UBS Securities and a member of the UBS Asia-Pacific Executive Committee.

Registration-based IPO on the STAR Market "has been a success so far", Qian said. Easier listing standards have enabled pioneering new-economy companies to seek floats domestically, and the IPOs of the first batch of floats were priced reasonably, according to Qian.

Securities authorities lifted the unspoken IPO pricing ceiling of 23 times earnings for the new tech board, giving the market a bigger say in IPO pricing. As for secondary trading, daily price fluctuation and short selling limits were also loosened.

On the back of the market-oriented reforms, more institutional investors from home and abroad are expected to join STAR Market secondary trading after the market becomes more sizable and less volatile over the next few quarters, Qian said.

"I think it (the debut of the STAR Market) is the beginning of a whole new era of the A-share market potentially," Qian said, as the STAR Market serves as a prelude to more market-oriented reforms, including the adoption of the registration-based IPO system on the ChiNext board in Shenzhen, which aims to attract innovative and fast-growing enterprises.

China's A-share market was born in December 1990, when the Shanghai Stock Exchange debuted with only eight listed firms capitalized at more than 1.2 billion yuan (US$170 million) in total.

Only 29 years later, the market has become the world's second-largest following the United States in terms of capitalization, with nearly 3,700 listed firms valued at more than 50 trillion yuan in total, or more than half of the country's annual GDP.

Looking at the A-share market's history, the most significant watershed was the split share structure reform initiated in 2005, said Wang Maobin, investment department chair at the University of International Business and Economics in Beijing.

The reform floated a large volume of non-tradable A shares that were largely State-owned. Non-tradable shareholders were required to bargain with and pay tradable shareholders compensation to make their shares tradable.

The overhaul triggered a bull run from 2006 to 2007, with the Shanghai Composite Index peaking at 6124 points in October 2007, the highest level ever.

The market became much more liquid and less volatile through the reform, while illegal trading behavior such as insider trading and market manipulation dropped markedly, according to Wang."Investors began to earn profit from growth in listed firms, rather than only from losses of other investors."

The reform also ushered in an era of development marked by steady, gradual change characterized by growth in the number of institutional investors, improvement in market rules, enrichment of trading tools, and two-way market opening-up over the past decade, Wang said.

The introduction of the Shanghai-Hong Kong Stock Connect in 2014 and the Shenzhen-Hong Kong Stock Connect in 2016 may be the most important events for A-share market opening-up in recent years, as they democratized access to A shares, said Michael Orzano, senior director of global equity indices at S&P Dow Jones Indices.

"The growth of China's onshore equity market has been tremendous over the past few decades. The opening-up of the market to foreign investors has been marked by a gradual, but consistent process, which has increased in pace significantly in recent years," Orzano said.

Despite all the progress, the A-share market "has historically been quite volatile", Orzano added.

Also, market resilience should be further strengthened, Wang said."Compared with mature overseas markets, it is harder for the A-share market to bounce back after being hit by major blows, leading to the phenomenon of short bullish runs but long bearish ones."

On the brink of its 30s, the A-share market is striding into a new development stage in which stepped-up reform measures - represented by the launch of the STAR Market - are going to redress its deeply rooted problems and strengthen its function in serving the real economy and boosting innovation, according to Wang.

Stock market reforms have assumed greater importance than ever as China's economy is heading for growth driven by technological innovation, which relies heavily on equity financing, analysts said.

President Xi Jinping announced in November that China would launch the STAR Market and pilot the registration-based IPO system. During a high-profile meeting in February, Xi stressed the need to establish a standard, transparent, open, dynamic and resilient capital market.

The China Securities Regulatory Commission, the country's top securities regulator, announced 12 main tasks for comprehensively deepening capital market reforms on Sept 10, signaling that substantive reform progress and detailed reform rules are on the way.

The commission will stick to market-oriented and law-based reforms and prioritize giving full play to the STAR Market's role as a test field. Institutional arrangements that proved effective on the new tech board, including the registration-based IPO system, will be gradually adopted across more mainland stock markets.

In the face of external uncertainty, China's pace in capital market opening-up and innovation has not geared down

Lynda Zhou, Equities chief investment officer in China at Fidelity International

Also among the dozen tasks are improving the quality of listed firms and capability of investment banks, encouraging more medium and long-term capital to invest in mainland equities, strengthening the capital market legal system, and speeding up the implementation of opening-up measures.

Replicating the market-oriented reforms of the STAR Market on other boards will help stock prices to better reflect the true value of listed firms and enhance market vitality, while further opening-up could lead to "positive changes in the nature of the market", said Lynda Zhou, equities chief investment officer in China at Fidelity International.

"In the face of external uncertainty, China's pace in capital market opening-up and innovation has not geared down," Zhou said.

READ MORE: Shanghai's STAR Market on steady path

She cited the launch of the Shanghai-London Stock Connect in June and the country's recent decision to remove quota limits from two schemes channeling overseas institutional investors to domestic securities - the Qualified Foreign Institutional Investor program and the renminbi-denominated RQFII.

The country's firm determination and steady execution of opening-up measures will attract more foreign institutional participation in the A-share market, changing the behavior of domestic market stakeholders, Zhou said.

For instance, regulators have gradually realized the importance of factors conducive to long-term market prosperity such as environmental, social and governance, or ESG, Zhou said. Listed firms will also pay more attention to protecting the interests of small and medium-sized shareholders, she added.

zhoulanxu@chinadaily.com.cn

Share this story

CHINA DAILY
HONG KONG NEWS
OPEN
Please click in the upper right corner to open it in your browser !