China's STAR Market, after three years of operations, is fast becoming the bourse of choice for new generation information technology, biomedicine and high-end equipment companies. Together, these sectors account for over 76 percent of all the companies listed on the STAR Market or the 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 bourse have seen steady growth in their share prices since listing.
Besides higher share prices, the bourse has also been a magnet for Chinese high-tech companies looking to raise funds for expansion. During the first six months of the year, funds raised via IPOs on the STAR Market exceeded the amount raised on the main board of the Shanghai Stock Exchange.
Xue Xiaowen, a lawyer at Allbright Law Office, started to help companies with their STAR Market IPO applications three years ago. The first applicant that she helped submitted their listing application on July 22nd, 2019, the day the STAR market began trading. Till date, she has helped four companies list their shares on the bourse. "The market approval now focuses more on companies' tech innovation characteristics, like patent numbers and whether they have clear sources of key technologies," she said.
The next focus of the STAR market will be the registration-based IPO mechanism, said experts.
"Promoting registration-based IPO mechanism will be the direction of capital market reform. It has been there for years, and will continue in the future," said Chen Jiahe, Chief Investment Officer of Novem Arcae Technologies. "It will bring challenges for both companies and investors. For IPO aspirants and listed companies, the new mechanism means that they will have to be really good to attract investors," he said.
Experts added that the rapid development of the board plays an important role in China's economic transformation and helps expand the country's technology capabilities. Shao Yu, Chief Economist of Orient Securities points out that China is now playing an increasingly important role in tech innovation and global industrial chains. "It means that overseas investors will have more original high-tech firms to choose from," said Shao.
Shao said that a mechanism needs to be established for selecting the superior firms and eliminating the inferior ones to build a complete loop and realize market-oriented resource allocation. "The STAR market should hold to its original intention of focusing on key tech sectors," he said.
While capital market experts and investors are bullish on the future of the bourse, the securities market regulator - China Securities Regulatory Commission - is planning to introduce more market-friendly mechanisms such as allowing brokerages themselves to actively quote a security to provide more liquidity and depth to the market, while profiting from the difference in bid-ask spreads.
Experts like 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 listed companies, this mechanism means that they will have to be really good to attract the investors. Just get yourself an IPO approval is no longer enough," said Chen.