How Is ‘China’s Nasdaq’ Doing amid Global Turbulence?
A snapshot of current trading patterns on the Shanghai bourse’s tech board.
While pundits are arguing over the oil clashes, the coronavirus pandemic and other apparent triggers of Monday’s global stock sell-off, we (as usual) have something to say about China’s much-hyped cluster of tech stocks – those listed on the Shanghai Stock Exchange (SSE) Sci-Tech Innovation Board, which is widely known as the Star Market.
The country’s equity markets have always been somewhat wayward. Crowded with countless speculators (there are over 160 million individuals holding A-shares as of early 2020), they definitely lack long-term institutional investors. A single post on Weibo (dubbed the ‘Chinese Twitter,’ WB:NASDAQ) can trigger abrupt changes in price levels. At the same time, companies’ quarterly and annual reports are often neglected by the value-seeking public – stellar financial results don’t necessarily drive stocks up.
This peculiar type of chaos, in league with the local policymakers’ intentions to reform the whole system in the short term, makes the mainland-listed stocks unique. Therefore, the Star Market, a trading platform that welcomes only technologically advanced enterprises, is, in some sense, doubly unique. Let’s have a look at its performance over the recent weeks.
As a guide to the future of the board, the content of the ‘Star 50’ component index remains unclear, since its release was postponed in October 2019; the total market cap appears to be one of the most appropriate proxies for the venue’s performance. (For instance, we used it in the latest quarterly report on the Star Market.)
The combined value of the firms that are currently trading on the tech board grew by nearly 16% from CNY 1.19 trillion (USD 171 billion) to CNY 1.38 trillion (USD 199 billion) after the exchange resumed operations on February 3. Meanwhile, we have seen eleven new public offerings over the same period.
In particular, car parts maker Autel (688208:SH), robotics firm Risong (688090:SH), Xiaomi-backed smart appliances developer Roborock (688169:SH), biopharma company Bio-Thera (688177:SH) and CR Micro (688396:SH), a chipmaking arm of Fortune 500 conglomerate China Resources, caught the eye of EqualOcean.
It is obvious that the newcomers have made a certain contribution to the total. We are thereby curious about how much they have pitched in.
Here’s the answer: the abovementioned 16%. Plus, some to spare. Nominally, the value hasn’t increased and has even insignificantly dropped.
The hill-like trajectory, with a peak on February 19, tells us two things. Firstly, trading patterns on the tech platform are just slightly correlated with the rest of the A-share market and haven’t been hugely affected by the COVID-19 outbreak in China. However – and this is the second insight here – the indicator started moving down once the virus broke through the country’s borders, spreading on a global scale.
As for the new 11 firms, they made up nearly CNY 200 billion (USD 28.76 billion) in market cap as of March 10, with CR Micro responsible for approximately CNY 54.85 billion (USD 7.91 billion), Roborock, Bio-Thera and Autel adding CNY 29.84 billion (USD 4.29 billion), CNY 24.15 billion (USD 6.06 billion) and CNY 21.69 billion (USD 3.12 billion) respectively. The former two are now ranking fifth and ninth on the list of the ten biggest companies on the board.
The fresh stocks are more than significant. In fact, they were the only source of the budding experimental marketplace’s growth over the latest rough patch. It is evident that all the ‘public newbies’ on the Star Market still tend to fly up in valuation immediately on their IPO day. And we are unlikely to see any exceptions in 2020.
As of March 10, over 90 firms were queueing in the Star Market’s IPO pipeline.