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Why China’s answer to Nasdaq is going gangbusters

by Ace Damon

August 1, 2020

To see the world of technology change before your eyes, watch the brief history of the Shanghai Stock Exchange’s Science and Technology Innovation Council. China’s President Xi Jinping revealed plans for the new exchange, modeled on the New York Nasdaq and known as the STAR Market, in November 2018. It would be a freer route to the capital markets of Chinese technology companies. It opened in July 2019 with 25 companies and high ratings. A year later, on July 23, the exchange launched an index of the 50 largest companies.

A few months ago, most people had never heard of the STAR Market or its companies. The most valuable was AMEC, a discreet Chinese chip maker, with a market capitalization of around 100 billion yuan ($ 14 billion). Other large members, who manufacture semiconductors (Montage Technology), office software (Kingsoft) or rail electronics (China Railway Signal & Communication), were mostly anonymous to Western ears.

All of that changed in July. First, Semiconductor Manufacturing International Corporation (SMIC) listed its shares on the board, raising $ 6.5 billion from the offering. A week later, Ant Group, the payments arm of Alibaba, China’s e-commerce titan, said it would also list shares in the country (as well as in Hong Kong). Ant may be the most valuable private company on Earth, valued at about $ 150 billion. Only this fluctuation could push the STAR Market beyond Nasdaq as this year’s main source of technological capital. And Ant is not alone. Geely, a major Chinese automaker; the fintech arm of JD.com, an online retailer; Imagination Technologies, a British chip designer with Chinese investors: everyone is listing sources. The exchange already houses 141 companies. Another 409 are in the process of registration.

The most impressive ratings on the STAR Market are for companies whose products are essential to the Chinese government’s desire for an independent domestic semiconductor industry. SMIC and AMEC shares, for example, are traded with gains of 200 and 500 times. The average price / earnings ratio for STAR 50 companies is 71, compared to 52 for Nasdaq.

For all the technical accounts that seem rich. Experts consider SMIC and AMEC to be behind leading-edge Western rivals. So how did STAR Market come out of nowhere to become the world’s biggest technology stack in just one year?

The short answer is the dispute for technological and economic supremacy between America and China. SMIC left the New York Stock Exchange last year, ostensibly for administrative reasons – but the impending American legislation that could bar Chinese companies from US stock exchanges may also have affected their decision. An investment like SMIC or AMEC is, in other words, a bet that Beijing’s semiconductor independence ambition is realistic – and that the Communist Party will not allow its champions to fail, even if they cannot compete with global competition from tip. . Judging by the STAR 50 index, an increase of almost 50% so far this year (see graph), many investors like these odds. ■

This article appeared in the Business section of the print edition, under the title “I wish for a star”

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