Author: Leo Wang
The BRB Bottomline
Nasdaq has a Chinese challenger: Star. With over 120 listed firms, most of which are in high-tech fields, it presents itself as a novel platform for global investors and companies to profit and access capital. Simultaneously, the market’s ascent reflects a changing attitude towards science, technology, and finance in the Asia-Pacific region that may one day threaten America’s technological and financial hegemony. Moving forward, one must realize Star’s immense economic potential and political significance.
China’s rise as a leader in science and technology corresponds to unprecedented levels of investment in startups and domestic big tech. In an attempt to fulfill this surge in demand, the Shanghai Stock Exchange Science and Technology Innovation Board, also known as the Star market, officially launched on July 22, 2019. By the same time next year, it would already include 120 firms and grow into the most valuable stock market in Asia at $400 billion. Moreover, in the grand and Machiavellian sphere of international affairs, Star also acts as a counterpart and challenger to Nasdaq—its more established US equivalent. With such a foundational role not just to Asia-Pacific, but the rest of the world, how will its future be shaped and how will it shape the future?
A Bright Explosion
The inception of the ongoing China-US Trade War in 2018 transformed not only international trade, but also the global equities market. Despite an advantage in terms of trade, Beijing lagged in the financial world. Its flagship Shanghai Stock Exchange’s market capitalization was still one-fifth the size of NYSE and two-fifth the size of Nasdaq. This situation was unlikely to improve unless immediate changes were made. Thus, in November of the same year, President Xi announced the decision to “launch the [Star market] at the Shanghai Stock Exchange” to cement Shanghai “as an international financial center and a hub of science and innovation.”
Although a strategically transformative move, this decision was rather predictable given the pace technology companies were growing; it was merely a matter of time before the country needed to create its own market. In addition, it serves as a platform against Nasdaq and NYSE, where listed Chinese companies are facing more scrutiny and political vicissitudes than ever before.
Its trading debut saw stocks surge by 520%. This record number was reflective of the market’s composition, which mostly consisted of high-growth firms in high-tech fields. The change in attitude to capital access is also why Star market’s operations and rules differ noticeably from the Shanghai Stock Exchange and Shenzhen Stock Exchange. Compared to its counterparts, Star has more financially inclusive listing requirements, more stringent delisting rules, higher allowance for stock price fluctuation, and a shortened listing process.
2020 has further affirmed investors’ optimism. Just this July, Star saw Semiconductor Manufacturing International Corporation (SMIC)—the largest semiconductor foundry company in mainland China—go public. In a similar fashion, Ant Financial, the Alibaba FinTech affiliate, is also expected to list on Star and HKSE simultaneously this year. With an IPO likely exceeding a jaw-dropping $34.4 billion, it expects to overtake Saudi Aramco and become the largest ever.
These deals may not be repeated, yet they nonetheless accurately reflect a positive trend deserving of global investors’ recognition and attention. Nasdaq is the historic and present standard, but Star is moving at a remarkable pace with little force capable of stopping it. In the grand scheme of things, China’s new stock exchange will certainly be paramount in helping it reach equal footings with the US in finance and technology.
Leo is a freshman intending to major in economics. As an investing columnist, he is particularly eager to investigate the intersection between political institutions, technological growth, and macroeconomic trends. Leo is also currently a research assistant in the Department of Economics and a pro bono consultant at The Berkeley Group. In his limited free time, Leo can be found supporting Raptors basketball, indulging in hours of Civilization gameplay, and binge watching Scorsese-directed films.