Two dozen firms raised over CNY 29 billion on the ‘Shanghai Nasdaq’ this quarter.
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► Despite their relatively small size, the new stocks were trading intensively against the backdrop of a board-wide transaction volume peak in February.
► China’s recent attempts to open up its financial markets might have stirred investors’ interest in the local tech enterprises.
This article is a part of EqualOcean's 'The Star Market Overview 1Q 2020' report.
In the previous article, we presented a snapshot of the Chinese public offering market in the first quarter of 2020. This time, we zoom in on the Shanghai exchange’s tech venue – the Star Market – which has been performing better than most of its global counterparts since the beginning of this year. Twenty four companies went public on the board from January to March.
Among the newly listed stocks, the biggest clusters were, unsurprisingly, semiconductors and biotech & pharma (the two topped the list in the previous quarter as well). Three most significant IPOs in these groups were completed by CR Microelectronics (688396:SH), a chipmaking arm of China Resources, medications producer Zelgen Biopharma (688266:SH) and Bio-Thera Solutions (688177:SH), which develops anti-tumor drugs.
Nonetheless, the soundest debut was that of Xiaomi-affiliated vacuum cleaner maker Roborock (688169:SH): the Beijing-based consumer electronics company obtained CNY 4.5 billion-odd (around USD 640 million), setting its initial share price at as high as CNY 271.12 (USD 38.54) apiece. Such a big (by the local standards) IPO is a logical end for the firm’s private equity story: in China, Original Equipment Manufacturers (OEMs) can rarely be interested in capital markets until the scaling-up stage. Xiaomi itself was a prime example.
Here’s another crucial observation. These 24 companies have seemingly become the traders’ darlings. In February, the volume of transactions related to them was nearly equal to that of 70 firms that launched trading the previous year. While this can be partially explained by the increased investor interest in fresh assets, this trend was strong in March, the month when just three small IPOs happened, too.
We found that the new stocks-related craze in the first quarter coincided with a board-wide peak in terms of the trading volume (if the first month of the submarket’s lifespan is not considered). At the time, China’s financial sector was awaiting some essential shifts in the regulatory system, including the new securities law and removal of the ban on foreign-owned asset management entity registration. Perhaps this is the boldest fundamental narrative explaining the abovementioned phenomenon.
Earlier, we noted that the Star Market has been somewhat resilient to the global healthcare crisis triggered by the COVID-19 epidemic.