China’s Nasdaq-style Star Market fast losing momentum as stretched valuations, IPO pipeline weigh on investor sentiment
- Average daily turnover has slumped by more than 60 per cent since trading started in July
- Combined market capitalisation of the 34 companies on the Star board has fallen 22 per cent from its peak of 690.2 billion yuan
The appeal of China’s new Nasdaq-style technology board has been waning since its launch three months ago.
The Science and Technology Innovation Board, or the Star Market, has lost more than a fifth of its market cap from its all-time high and the average daily turnover has slumped by more than 60 per cent since trading started in July.
While institutional investors have been steering clear of the board because of its lofty valuations, most of the nation’s individual traders, who like to place speculative bets on smaller companies with volatile price swings, cannot access the market due to a minimum trading account balance of 500,000 yuan (US$70,646).
“Stretched valuations and a possible surge in IPOs on the Star board are weighing on sentiment,” said Ken Chen Hao, a strategist at KGI Securities in Shanghai. “For the board to come back, investors need to see a clear sign of China’s transformation of its economic structure, particularly growth driven by technology and innovation.”
The absence of trading interest in the Star market, which was mooted by President Xi Jinping in November last year, is frustrating for policymakers, as China wants to tap the board to support its home-grown technology industry against the backdrop of a drawn-out trade war with the US and to test a market-based registration system for initial public offerings.