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Shin Jin's new stock board, the Star Market, is billed as the Chinese equivalent of the tech dominated NASDAQ index in the US. It got off to a flying start on its opening day on July 22 with share prices of the first 25 listings rocketing by as much as 520 per cent. Company presidents became billionaires overnight, and retail investors lucky enough to get a slice of the 25 initial stocks made a killing. But why has China allowed this kind of wild west opportunity and who is set to gain from it?
Xi Jinping gave the go ahead for Star less than a year ago. The idea was to keep China's growing number of tech unicorns within its borders and stop them from listing on markets like NASDAQ or on the New York Stock Exchange. But China is uncomfortable about leaving valuations for the market to decide. The Shanghai and Shenzhen exchanges permit shifts of up to 44 per cent on their first day of trading, after which they're limited to 10 per cent.
Big swings on Chinese markets in recent years have been blamed on the outsized influence of retail investors prone to over exuberance. They dominate as much as 80 per cent of China's main exchanges. We start with set up. The government insisted that investors had to have more than half a million MMB, about $73,000, invested in a minimum two-year trading history, but that hasn't put much of a brake on interest in the new market. And the new listings were massively oversubscribed.
Investors concluded that the backing of the Chinese government made the opening of the Star Market a one-way bet. Longer-term Star will have to convince technology companies that it has their interests at heart and will allow the market, rather than government policy, to set prices.
