China's STAR Market, partly a trade war retaliation.

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STAR Market is the buzzword for China’s unregulated stock market for domestic tech companies - the Science and Technology Innovation Board - but if that’s the case, shouldn’t the correct acronym be STIB?

Spelling aside, it’s part of the Shanghai Stock Exchange in much the same way that AiM is part of the London Stock Exchange, and it’s being touted as a quick and easy way to get a listing without Government approval.

This is in contrast to having to apply for IPO approval from the China Securities and Regulatory Commission (CSRC).

I’m thinking the people at Australia’s NSX (the ‘growth style company’ competitor to ASX) would have been watching STAR’s launch today, with a heavy smear of relish, or perhaps jealousy.

Today, the first 25 stocks (an experimental sample) were launched like a fleet of star ships heading off to save the world, with many prematurely hitting Wharp-9, which no doubt triggered the market stabilisation circuit breakers.

But going back to last week, China Knowledge reported that these companies were set to raise RMB 37 billion on an average PE of 53x, much higher than the PE cap of 23x, maintained by CSRC.

Today, CNN reported that Anji Microelectronics Technology closed 400% up, after first peaking at over 500%.

Assuming the 53x is correct and all other things being equal, this implies a multiple of over 265x. Now that’s a massive multiple for any company, but especially for a company that supplies materials for semis (traditionally a low PE sector) and especially given it was one of 25 stocks that IPO’d on the same day!

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Trying to replicate NASDAQ? Billionaire factory? Casino? Yep, all of that, even though the last attempt, ChiNext, failed to live up to expectations.

But it’s really only once you start to factor in the Chinese Government’s desire for a thriving tech sector and an alternative to NASDAQ for Chinese IPOs (e.g., Alibaba, Tencent, JD.com), plus a trade war/Huawei retaliation - that it starts to make political sense.

It probably also explains what STAR stands for - Science, Technology and Retaliation.

Mike.


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