Shanghai new board could serve as fresh catalyst for tech plays

April 16, 2019 14:10
Shanghai tech board aims to lure start-ups that master core know-how and are in line with China's national strategy related to internet, big data, cloud computing, AI, software, high-end equipment manufacturing and bio-pharmaceuticals. Photo: Reuters

Over the long run, only companies that can deliver strong earnings growth will be able to sustain a rally and keep scaling new heights. As such, tech sector will remain one of the most promising areas.

The long-awaited new technology board in Shanghai may serve as a new catalyst this year for tech stocks.

The new board was announced by Chinese President Xi Jinping during the China International Import Expo late last year. The move is aimed at boosting Shanghai’s status as a global financial hub and tech innovation center.

Most people thought earlier that the tech board was being designed to attract US-listed Chinese companies to return home. But now, it is apparent that the board will be a new financing channel for new-economy “unicorns”.

The tech board intends to lure start-ups that master core know-how and are in line with national strategy in internet, big data, cloud computing, AI, software, high-end equipment manufacturing and bio-pharmaceutical sectors, according to the statement from the China Securities Regulatory Commission (CSRC).

The regulator stressed that the new tech board is part of China’s tech-driven development strategy.

The Shanghai Stock Exchange had already received 28 applications as of the end of last month. Among those applicants, 22 were internet firms, and three were pharmaceutical companies.

It’s widely expected that the first batch of start-ups will make a debut on the new tech board in June.

Referencing historical valuation of Shenzhen’s Growth Enterprise Market, the first batch of firms listed on the new Shanghai tech board will likely obtain decent valuations, particularly given the ample market liquidity at present.

MSCI said it will increase the inclusion factor of Chinese large-cap stocks to 20 percent from the current 5 percent in three steps -- in May, August and November this year. China's A-shares are set to be the focus of global markets this year.

While investors can already invest in A-shares through the stock link program, it may take time for companies on the new tech board to be included under the scheme.

When that happens, it could become a fresh catalyst for the tech sector.

In the US, ride-hailing platform Lyft listed its shares on the Nasdaq late last month. And several other prominent tech firms, including Pinterest, Airbnb and Uber, are preparing to go public. As IPO activities become heated, does that suggest a bubble is in the making?

Share prices are unreasonable most of the time as they swing from one extreme to the other. Since the market is not overly heated yet, and given the accommodating liquidity environment, the peak is probably yet to come.

This article appeared in the Hong Kong Economic Journal on April 15

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]


Columnist at the Hong Kong Economic Journal