SHANGHAI (Reuters) – Trading on China's new Nasdaq style board for home-based tech firms hits pyre height on Monday, sending stocks up to 520%, and raising corporate value by $ 44 billion and surpassing veteran investors' braced for a wild trip .
Shanghai Party Secretary Li Qiang (Center L) and China Securities Regulatory Commission (CSRC) Chairman Yi Huiman (Center R) attend the listing ceremony of the first case of companies at STAR Market, China's new Nasdaq style Shanghai Stock Exchange (SSE) in Shanghai, China July 22, 2019. REUTERS / Stringer
Sixteen of the first batch of 25 companies – ranging from chip makers to healthcare companies – more than doubled their already shabby, first public offer IPO prices at STAR Market, run by Shanghai Stock Exchange.
The companies raised average gains of 140% in a raucous first trading day that knocked out the switch that was designed to reassure frenzied activity. Today's weakest performer jumped 84.22%. Overall, the day saw the creation of about 305 billion yuan (44.3 billion yuan) in new market value, according to Reuters estimates.
"The prize win is crazier than we expected," said Stephen Huang, vice president of Shanghai See Truth Investment Management. "These are good companies, but the valuations are too high. Buy them now, make no sense."
Modeled after the Nasdaq, and complete with a US-style IPO system, STAR can still be China's boldest capital market reform efforts. It is also seen driven by Beijing's ambition to become technologically self-sufficient as a longer trade war with Washington, which captures Chinese tech firms in the cross-fire.
A semiconductor company was quickly stopped twice as the company's shares beat two switches – only after increasing 30%, then after 60% climbs from the market openly.
The mechanisms did little to keep Anji shares in check when they increased as much as 520% from their IPO price in the morning session. Anji shares ended the day with 400.2% from the IPO award, today's biggest gain, giving the company a valuation of nearly 242 times 2018 revenue.
Suzhou Harmontronics Automation Technology Co Ltd ( 688022.SS ), in contrast, triggered the power switch in the opposite direction and dropped 30% from the market open in early trading before recovery. But by closing the market, the company's shares were still 94.61% higher than the IPO price.
Wild stock fluctuations, partly the result of loose trade rules, had been much expected. IPOs had been overwritten by an average of around 1700 times among retail investors.
STAR Market places no limits on stock quotes during the first five days of trading. It compares to a 44% cap on other boards in China.
In subsequent trading permits, shares on the new technology board will be allowed to rise or fall to a maximum of 20% in one day, doubling 10% daily limit on other boards.
Regulators last week warned individual investors against "blindly" buying STAR Market shares, but there were large fluctuations that were normal.
The trading rules of Looser were aimed at providing market players with sufficient freedom in the game, accelerating the formation of equilibrium prices and increasing price-setting efficiency, said the Shanghai Stock Exchange (SSE) in a statement on Friday.
SSE added that it was normal to see large fluctuations in newly constructed tech stocks, as such companies usually have uncertain prospects and are difficult to evaluate.
The exchange cited major fluctuations in listed stocks on the Nasdaq and Hong Kong stock exchanges, especially by designating newly listed electric car company Nio Inc ( NIO ) and Chinese startup Luckin Coffee ( LK.O )) .
SSE said an index tracking of STAR Market would be launched on the 11th trading day after the debut of the 30th company board.
MAIN BOARD DRAG
Investor focus on STAR Market in the short term could weigh the main board in terms of liquidity and attention, said Zhu Junchun, chief analyst with Lianxun Securities.
This effect was ready on Monday, with the reference index Shanghai Composite Index. SSEC falls 1.27%, and the blue chip CSI300 index .CSI300 ends 0.69% lower.
Signal & Communications Corp. Ltd ( 688009.SS ) Dual-listed China Railway (19459022] 3969.HK ) clearly illustrated the gap in investor's enthusiasm. STAR Market more than doubled from the IPO price, although Hong Kong shares fell 11.7% after poorer than expected preliminary results.
Huang in Shanghai See Truth proposed rational investors wait for the sidelines and observe the market for a month before making purchase decisions.
Some investors still welcomed the board's debut that Beijing hopes will drive investments in the sector and help the country innovate and compete globally.
Yang Tingwu, CEO of Tongheng Investment, a hedge fund house in Fujian Province, said he saw 80% of listed companies as "cannon fodder", but the chance that the remaining 20% produced China's next Tencent () 0700.HK ) or Huawei made the market turmoil worth it.
"STAR Market opens a new chapter for China's stock market. Cheers to the Chinese dream in our capital markets!", He said.
Further reporting by Luoyan Liu and Winni Zhou; Editing by Jacqueline Wong