July 23, 2020: China’s STAR Market, a year-old tech-focused board for start-ups that Beijing hopes will fund a technological edge over Washington, launched its index on Thursday and showed it has made double the gains of its U.S. counterpart Nasdaq this year.
The STAR 50 index, the first index for Shanghai’s STAR Market, opened at 1,487.2 points, compared with 1,000 base points at the end of 2019. That makes for a roughly 50% surge compared with the Nasdaq 100 index’s 24% rise so far this year.
The creation of the index, which tracks the 50 biggest companies listed on the board for more than six months, offers investors a tool to monitor and evaluate a market that has been endorsed by Chinese President Xi Jinping.
“STAR 50 will be the equivalent to Nasdaq 100,” said Duan Shihua, head of Shanghai Changer Investment Management Consulting, a Chinese index publisher.
“In this information age, tech firms have the biggest growth potential, and represent the future.”
First announced by President Xi in November 2018, when the Sino-U.S. trade war was raging, the STAR Market was designed to nurture China’s own Intels and Qualcomms as Beijing seeks technological self-sufficiency.
The STAR Market, with its streamlined listing process, has already dwarfed Shanghai’s 30-year-old mainboard in the first half of 2020 to become the world’s second-biggest IPO venue, trailing only Nasdaq.
The market is now home to 140 companies worth 2.8 trillion yuan ($400 billion) in combined market value, and hundreds of companies are preparing to list, including Alibaba’s Ant Group, the fintech giant.
The STAR 50 index tracks tech companies such as chip-maker Advanced Micro-Fabrication Equipment and software maker Beijing Kingsoft.
Money managers are already rushing to capitalize on the index launch. Four mutual fund companies, including China Asset Management Co and E Fund Management Co, have applied to launch exchange-traded funds (ETFs) tracking the STAR 50, according to regulatory disclosures.
But with STAR Market companies trading at 100 times trailing earnings on average, compared with a multiple of just 34 for Nasdaq stocks, some analysts caution it could be a bubble ready to burst.
The launch is also intensifying the competition between global bourses for tech-related listings and investment.
Hang Seng Indexes Co said it will launch the Hang Seng TECH Index on July 27 to meet rapidly-growing interest in the tech sector. The new index will track Hong Kong’s 30 largest technology companies.
Lu Wendao, vice president of the Shanghai Stock Exchange, said the STAR Market’s biggest triumph was the successful launch of a U.S.-style registration-based system to streamline the process of initial public offerings (IPOs), according to an article posted on the exchange’s website.
The new IPO system is being copied in Shenzhen’s start-up board ChiNext. ($1 = 7.0042 Chinese yuan renminbi).