By Camellia Huang, Investment Analyst at Aubrey Capital Management.
In March I wrote an article heralding the arrival of the newly founded STAR market (A star is born – the tale of China’s NASDAQ) for leading technology and innovation companies. The STAR provides more scope and flexibility for companies to list compared with pre-existing markets whilst demanding stricter disclosure agreements to ensure that the quality of the involved companies remains high.
The tremendous growth in the size of the STAR from a standing start in July 2019 has continued with vigour. In March, 230 companies were listed on the STAR. Subsequently, 130 companies have joined the Board raising some USD 17bn in the process. The total market cap has also increased by almost 75%, which makes the STAR larger than Spain’s equity market. These 130 companies are for the most part leading-edge companies in their sectors. For instance, Semiconductor Manufacturing International Company, Beijing Kingsoft Office and Bloomage Biotechnology Corporation are amongst the top 10 largest listings.
What is equally noteworthy is the STAR’s performance this year: whilst the main board indices are down 4% since the publication of my article, the STAR 50 index is up by 16% (it reached its peak in July and was up by 27%!).
As the entrepreneurship and VC/PE ecosystems continue to grow, China has become the second largest breeding ground for unicorns (165 unicorns vs 405 in the US. 3rd and 4th players were Europe ex UK and India with 69 and 38 unicorns respectively). The growth of Chinese unicorns is expected to accelerate, especially with Chinese policymakers’ commitment to strengthen the country’s technology and innovation capability (“Made in China 2025” policy and the investment opportunities it presents).
The regulatory changes brought in this summer by the Chinese government have certainly impacted sentiment towards the market as have the travails of Evergrande. As discussed in “China’s policy of Common Prosperity and the “Left Behinders” (China’s policy of Common Prosperity and the “Left Behinders”), we believe the motivation behind the regulations is to create a more sustainable environment for long term development. We are also more sanguine about the demise of Evergrande (Evergrande? Ever thus and The Systemic Implications of Evergrande).