A STAR is born and growing fast

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).

China has long ceased to be an export driven economy, dependant on foreign demand.  The domestic economy now is the main story.  In this context it should come as no surprise that its domestic equity markets should follow suit and provide capital for exciting growth companies, often at the leading edge of technology.  These will provide great opportunities for the discerning stock picker.

Having been born in July 2019, the STAR is rapidly maturing.

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This document has been issued by Aubrey Capital Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission. You should be aware that the regulatory regime applicable in the UK may well be different in your home jurisdiction. This document has been prepared solely for the intended recipient for information purposes and is not a solicitation, or an offer to buy or sell any security. The information on which the document is based has been obtained from sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice. Any comments expressed in this presentation should not be taken as a recommendation or advice. Please note that the prices of shares and the income from them can fall as well as rise and you may not get back the amount originally invested. This can be as a result of market movements and of variations in the exchange rates between currencies. Past performance is not a guide to future returns and may not be repeated. Aubrey Capital Management Limited accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. This document does not in any way constitute investment advice or an offer or invitation to deal in securities. Recipients should always seek the advice of a qualified investment professional before making any investment decisions.


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