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Modeled after Nasdaq, will China's Star Market stocks attract confidence?

Star Market, the Nasdaq of China Gained Up to 520%

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Last week, shares sky-rocketed by 520% on the first day of trading of Star Market, the new Shanghai’s science and technology equities market. 

At the moment, 25 companies are listed, ranging from chip-makers to biotech firms have more than doubled in only a few days after their initial public offering on this market, operated by the Shanghai Stock Exchange. 

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Unlike China other listed market, Star Market has “no daily trading limits for the first five days of trading”, as the Irish Times reported. As its business model is copied on Nasdaq, experts wonder if Star Market will succeed to attract Asian tech companies and compete with the American market. 

China’s attempt to copy Nasdaq

On July 21st, about 140 technology and sciences companies are planned to be launched on Star Market listing. Located by the Shanghai Stock Exchange, it is set to raise more than $18.7bn.

So far, 25 companies were listed on the exchange last Monday. Within a day, it was trading “between 92 per cent and 414 per cent higher from where they had priced by early afternoon”, reported the Irish Times.

In order to guarantee a sustainable reputation and after thousands of applications, Star Market only accepted a few very successful companies, such as chipmakers Anji which rose as much as 520%, as well as Montage Technology, which rose by 285%.

Last but not least, 4 of the 25 stocks had gains of more than 200% in afternoon trading, with 16 stocks up more than 100%.

Experts fear a “casino” effect

However, analysts fear that Star Market might do a “casino” effect. While the initiative was lunched by the Chinese president Xi Jinping last November “to provide a freer market mechanism to fund technological innovation rather than infrastructure projects”, reports the South China Morning Post. 

As a matter of fact, it is not the first time that China launches a Nasdaq-inspired stock market. Ten years ago, ChiNext was launched in China during the financial crisis and lost more than 60% of its initial valuation by 2015.

As it turns out, investors remain lucid on the situation. “This is a new market under President Xi Jinping’s directions, and it will be a disgrace if a boom-to-bust cycle happens right after the inauguration”, shared to South Morning China Post to Jiang Guangyuan, a small investor. 

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Will Star Market attract confidence?

While the numbers have caught global attention, BNP Paribas published a research report saying that “some foreign investors had shown interest in tracking the stocks listed on the new board.”.

In Hong Kong, analysts have also expressed positive views. Ronald Wan, chief executive of Partners Capital International in Hong Kong said to CNN: “This surge is crazy. But it’s already overdone. I don’t think such gains can last long. It’s way too speculative.”. 

However, many analysts have already lost interest and suspect Star Market that it will likely not to be sustainable.

“We’ve got seen so many issues like this occur earlier than. There was a sort of euphoria final week, and in the event you construct a inventory to a sky excessive stage, within the close to time period there’s certain to be profit-taking, or a slowdown,” concluded Louis Tse Ming-kwong, managing director of VC Asset Administration.

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Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.