STAR Market expected to fuel innovation drive

President calls for more measures to encourage listing of high-tech firms

The science and technology innovation board on the Shanghai Stock Exchange has gained further endorsement from the top leadership for its role in nurturing the country's innovative power as President Xi Jinping called for greater support to facilitate high-tech companies to go public.

Analysts said that Xi's remark showed that the leadership expects highly of the board, the role of which should be further elevated to help boost the country's technological progress and high-quality growth.

Xi stressed on Sunday during an inspection tour of Shanghai that the science and technology innovation board and the pilot registration system of new share sales experimented on the board must remain committed to their roles, and the quality of listed firms should be improved.

The president underscored more measures to encourage high-tech companies to float their shares, strengthen information disclosure and step up market regulation. Xi also called for more efforts in the innovation of systems and mechanisms, strengthening institutions, and boosting the quality of the Chinese economy.

"Xi's remark is of much significance, as it revealed that the top leadership attaches great importance and expects highly of the board," said Li Daxiao, chief economist with Shenzhen-based Yingda Securities.

"The role of the board should be to elevate the country's capacity of science and technology, not merely support the financing of tech startups," Li said.

A year ago, Xi announced the decision to launch the science and technology innovation board in Shanghai and to experiment the registration system on the board. The board, also known as the STAR Market, officially began trading on July 22.

Li expected that market scale of the new board will rapidly expand to accommodate tech giants, with a fast pace of initial public offerings and listed firms of larger market capitalization and business revenue, such as those comparable to Ant Financial and ByteDance.

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, said Xi's remark boosted investor confidence as it reiterated the nation's determination of registration-based reform and support of high-tech and innovative enterprises.

"The STAR Market should stay committed to its role of supporting real high-tech enterprises, by sticking with IPO standards and review procedures that are inclusive to them and characteristics of the registration-based system," he said. The recent retreat of STAR-listed stocks is within expectations and can be interpreted as a return to rational valuation levels, Dong added, citing that investor enthusiasm and the scarcity of available investment targets when the new board debuted has led to over-valuation.

Yi Huiman, chairman of the China Securities Regulatory Commission, said on Sunday that the performance of the board has been within expectations and was reasonably stable.

"Promoting an innovation-driven economy is an important mission of the science and technology innovation board," Yi said. "After a period of time, the board will surely help incubate great technology firms."

Companies listed on the board reported a total revenue of 69.19 billion yuan ($9.85 billion) in the first three quarters and net profit of 8.6 billion yuan, up by 41 percent year-on-year, according to the CSRC.

"Now is the window of opportunity to build exposure to tech shares, getting prepared for a potential uptrend that may start over the next three to six months," said Zhang Xia, chief strategist with Shenzhen-based China Merchants Securities.

Third-quarter financial results showed that corporate earnings in the tech sector had bottomed out and activity within the sector is expected to pick up, Zhang said, adding that consumer electronics, 5G and intelligent driving are among the sub-sectors that deserve particular attention.

"The opportunities in tech shares are unlikely to be broad-based, but focus on listed firms with solid earnings growth," Zhang said, citing that the overall market liquidity might not get a major boost over the rest of the year.