Trading hit a fever pitch, with shares rocketing as much as 520 percent, as China‘s new Nasdaq-style board for homegrown tech firms debuted on Monday, with valuations exceeding even the expectations of veteran investors braced for a wild ride.
All of the first batch of 25 companies – ranging from chip-makers to healthcare firms – more than doubled their already frothy initial public offering (IPO) prices on the STAR Market, operated by the Shanghai Stock Exchange.
“The price gains are crazier than we expected,” said Stephen Huang, vice president of Shanghai See Truth Investment Management. “These are good companies, but valuations are too high. Buying them now makes no sense.”
Modelled after Nasdaq, and complete with a US-style IPO system, STAR may be China’s boldest attempt at capital market reforms yet. It is also seen driven by Beijing’s ambition to become technologically self-reliant as a prolonged trade war with Washington catches Chinese tech firms in the cross-fire.
Trading in Anji Microelectronics Technology (Shanghai) Co Ltd, a semiconductor firm, was briefly halted twice as the company’s shares hit two circuit breakers – first after rising 30 percent, then after climbing 60 percent from the market open – designed to calm frenzied buying.
The mechanisms did little to keep Anji shares in check as they soared as much as 520 percent from their IPO price in the morning session. By the midday break, Anji shares had leapt 415 percent from their IPO price, giving the company a valuation of 249 times 2018 earnings.
Suzhou Harmontronics Automation Technology Co Ltd, however, triggered its circuit breaker in the opposite direction, falling 30 percent from the market open, before rebounding. But by midday the company’s shares were still 113 percent higher than their IPO price.
Wild share price swings, partly the result of loose trading rules, had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors.
The STAR Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44 percent on debut on other boards in China.
In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20 percent in a day, double the 10 percent daily limit on other boards.
Regulators last week cautioned individual investors against “blindly” buying STAR Market stocks, but said big fluctuations were normal.
Looser trading rules were aimed at “giving market players adequate freedom in the game, accelerating the formation of equilibrium prices, and boosting price-setting efficiency,” the Shanghai Stock Exchange (SSE) said in a statement on Friday.
The SSE added that it was normal to see big swings in newly listed tech shares, as such companies typically have uncertain prospects, and are difficult to evaluate.
The exchange cited big fluctuations in IPO shares on Nasdaq and the Hong Kong stock exchange, in particular singling out recently listed electric car firm Nio Inc and Chinese start-up Luckin Coffee.
SSE said that an index tracking the STAR Market would be launched on the 11th trading day following the debut of the 30th company on the board.
Investor focus on the STAR Market in the short term could weigh on the main board in terms of liquidity and attention, said Zhu Junchun, chief analyst with Lianxun Securities.
That effect was clear on Monday, with the benchmark Shanghai Composite Index dipping 0.57 percent by midday, and the blue-chip CSI300 index trading flat.
Huang at Shanghai See Truth suggested rational investors wait on the sidelines and observe the market for a month, before making purchasing decisions.
Some investors, nevertheless, hailed the debut of the board that Beijing hopes will propel investment in the sector and help the country innovate and compete globally.
“The STAR Market opens a new chapter for China’s stock market,” said Yang Tingwu, vice general manager of Tongheng Investment, a hedge fund house in Fujian Province in Southern China. “Toast to the Chinese dream in our capital markets!”