China’s Star Market sees rocket rise in demand and valuations

Aug 07, 2019
More than one hundred and twenty companies queue up to list

The new China tech-focused stock market – the Star Market – is living up to its name with huge Chinese demand for IPOs on the exchange and new freer trading rules sending valuations to stratospheric levels.

More than 120 companies have joined the queue to list on the market, officials revealed in a statement, and it is the only venue in the country where stocks can move freely on the first five days of trading. Companies have so far traded at an average 31 times reported earnings, according to official data.

Shanghai-based Advanced Micro-Fabrication Equipment was the highest priced IPO among the market’s first group of 25 stocks – and has almost tripled in value since listing at 171 times profit.

Shenzhen Chipscreen Biosciences, which focuses on cancer treatments, raised about ¥1 bn ($145 mn) from its IPO – amounting to 27 percent more than its initial target.

In an attempt to attract high-growth technology firms to list on domestic exchanges, China’s regulators removed a cap on valuations for companies debuting on the Shanghai Stock Exchange-run Star Market – in a bid to create China’s answer to Nasdaq. 

According to a Baker McKenzie report, the Star Market is reshaping the capital markets in the region. ‘There has already been some shake-up, with several IPOs set to list in Hong Kong canceling their applications to instead float in Shanghai,’ notes the report, citing the example of biomedical storage equipment producer Qingdao Haier Biomedical, whose IPO application was accepted by the Shanghai Stock Exchange in April.

China had imposed a regulatory cap of 23 times earnings for all IPOs since 2014 with some exclusions for state-backed firms. The aim was to protect investors from buying into shares at inflated prices, but it resulted in entrepreneurs moving to take their companies public in New York or Hong Kong where they could raise more funds.

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