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Feb 03, 2021

New way for overseas investors to access China’s Star Market

China seeking ways to open up markets to foreign investment

China’s booming Star Market has become more accessible to international investors as the country continues to open up to foreign capital. 

From Monday this week, companies listed on the Star Market can be included in the Stock Connect trading scheme, which links mainland Chinese exchanges in Shanghai and Shenzhen with Hong Kong. 

The Stock Connect system is a popular way for overseas investors to gain access to mainland Chinese stocks. Prior to the change, international investors could trade on the Star Market only by registering with China’s Qualified Foreign Institutional Investor program.

Under the new rules, Star Market companies can be traded through Stock Connect if they are included in Shanghai’s SSE 180 or SSE 380 indexes, or if they have shares traded in Hong Kong. Initially, 12 companies – including Advanced Micro-Fabrication Equipment and Raytron Technology – are eligible to be included.

The move will ‘introduce more overseas institutional investors to the Star Market and further improve the investor structure and level of internationalization of China’s capital market,’ says the Shanghai Stock Exchange (SSE) in a statement released last month.

The new way to access the Star Market will be available only to ‘institutional professional investors,’ adds the statement.

Companies eligible for inclusion can also expect greater exposure to global indexes. Index providers FTSE Russell and MSCI require companies to be included in Stock Connect before adding them to certain products.

Launched in 2019, the Star Market has quickly established itself as one of the most important global IPO venues. SSE set up the new board to offer a lighter listing environment for budding science and technology companies – for example, issuers can have multiple share classes and be unprofitable. 

The venue has become a popular choice for fast-growing companies as well as established names keen to tap the mainland China investment market. Last month, Lenovo Group, the world’s largest PC maker, revealed plans to list Chinese Depository Receipts on the Star Market. 

‘With Lenovo’s strong global presence and heritage in China, we are confident this offering will help further realize Lenovo’s value by leveraging the booming China capital market and at the same time enable investors in China to invest more easily,’ said Yuanqing Yang, Lenovo’s chairman and CEO, in a statement.

Last year, the Star Market helped make SSE the world’s top exchange for IPO volume, according to data from EY. Shanghai attracted 233 listings across its main board and Star Market, with the latter providing around two thirds of the total. 

The Star Market also saw the biggest IPO of 2020, when Semiconductor Manufacturing International Corp (SMIC) raised $7.6 bn in July. 

Along with its rapid growth, the listings venue is known for huge IPO ‘pops’ and wild price swings. A case in point, SMIC jumped around 200 percent on its first trading day. 

Underlining the market’s attraction for overseas investors, KraneShares last week announced the launch of the first US ETF focused on Star Market companies. The ETF will track the Star 50 index, which includes the 50 largest issuers on the board based on market capitalization and liquidity.