China’s new Star Market may be a boon to stocks trading on main board, according to history
- Almost a decade ago the Shanghai Composite Index delivered solid gains in the weeks after the launch of the ChiNext, a board similar to the Star Market
The opening of China’s new Nasdaq-styled technology board bodes well for investors betting on stocks trading on the main board, if history is any guide.
There has been anguish among traders that the Science and Technology Innovation Board, also known as the Star Market, would drain liquidity from existing equities. Indeed, the Shanghai Composite Index dropped as much as 1.5 per cent on Monday while the stocks trading on the new board enjoyed stunning gains.
The benchmark gauge has fallen 5.2 per cent over the past three weeks, as investors braced themselves for the debut of the 25 firms on the Star Market.
But historical data shows the benchmark tracking the main boards tends to recover quickly in such circumstances.
Almost a decade ago the Shanghai Composite Index delivered solid gains in the weeks immediately after the launch of the ChiNext, a board similar to the Star Market.
It rose 5.6 per cent in the week after the ChiNext market started trading in September 2009, and 6.7 per cent after a month. As with the Star Market, the gauge had fallen in the corresponding period before the ChiNext debut, when 28 companies started trading simultaneously in Shenzhen.
The 25 Star Market debutants raised a combined 37 billion yuan (US$5.4 billion) from their initial public offerings.
With the dust from the IPOs settling down, the sentiment on the mainboard market is set to improve, according to Sinolink Securities.
“The boot that was restraining the risk appetite has dropped,” said Li Lifeng, a Shanghai-based strategist at the brokerage. “The new tech board will lead the broader market higher rather than siphon off capital.”
The Star Market, which was first announced by President Xi Jinping at the opening ceremony of the International Import Expo in November, allows the listing of unprofitable companies for the first time and waives the cap on IPO prices. The ChiNext board, which has more stringent listing requirements, now hosts 788 companies.