China’s STAR market, after three years of operation, is quickly becoming the exchange of choice for a new generation of high-end information technology, biomedical and equipment companies. Together, these sectors account for more than 76 percent of all companies listed on the STAR Market or Science and Technology Innovation Board of the Shanghai Stock Exchange. Part of the reason why companies are bullish on the STAR Market stems from the fact that 321 of the 440 companies listed on the exchange have experienced steady share price growth since listing.
In addition to higher stock prices, the stock exchange is also a magnet for Chinese high-tech companies looking to raise funds for expansion. During the first six months of the year, the funds raised through the IPO on STAR Market exceeded the amount raised on the main board of the Shanghai Stock Exchange.
Xue Xiaowen, a lawyer at Allbright Law Firm, started helping companies with their STAR Market IPO applications three years ago. The first applicant he helped submitted their listing application on July 22, 2019, the day the STAR market began trading. To date, he has helped four companies list their shares on the stock exchange. “Market approval is now more focused on the characteristics of companies’ technological innovations, such as patent numbers and whether they have a clear primary technology source,” he said.
STAR’s next market focus will be a registration-based IPO mechanism, experts say.
“Promoting a registration-based IPO mechanism will be the direction of capital market reform. It has been around for many years, and will continue to do so in the future,” said Chen Jiahe, Chief Investment Officer of Novem Arcae Technologies. “This will bring challenges for companies and investors. For prospective IPOs and issuers, this new mechanism means that it must be really good to attract investors,” he said.
Experts added that the council’s rapid development played an important role in China’s economic transformation and helped expand the country’s technological capabilities. Shao Yu, Chief Economist of Orient Securities pointed out that China is now playing an increasingly important role in technological innovation and global industrial chains. “This means that overseas investors will have more genuine high-tech companies to choose from,” Shao said.
Shao said that mechanisms need to be established to select superior companies and eliminate inferior ones in order to build a complete circle and realize market-oriented allocation of resources. “The STAR market should maintain its original intention to focus on key technology sectors,” he said.
While capital market experts and investors are optimistic about the future of the exchange, the securities market regulator – China’s Securities Regulatory Commission – plans to introduce more market-friendly mechanisms such as allowing brokers themselves to actively quote securities to provide more liquidity and depth. to the market, while profiting from the difference in the bid-ask spread.
Experts such as Chen Jiahe from Novem Arcae feel that the new blueprint of the STAR market will bring more challenges for companies and investors. “For IPO companies and issuers, this mechanism means they have to be really good at attracting investors. Just getting IPO approval is not enough anymore,” Chen said.
