GBA Brief

Will Shanghai’s new bourse put Shenzhen and Hong Kong in the shade?

A star was born last week as the Shanghai Stock Exchange launched its much-anticipated technology and innovation board. But how might the launch affect Shenzhen’s GEM board, which was set up to entice similar companies? Could Hong Kong’s more established stock market take a hit too?

Officials say everything is in place for the Nasdaq-style bourse in Shanghai, now known as the Star Market, and that more than 100 firms are battling to become the first batch of debutants. 

As of this Tuesday, 11 firms had been approved to go public and Suzhou HYC, a touch-screen equipment maker, had already started its book- building process. 

When Shenzhen’s Growth Enterprise Market (GEM) first got rolling in October 2009, the share prices of the first batch of firms spiked up an average of 70%. A similar start for the Star Market could give the broader A-share market a shot in the arm, local brokerages are hoping. 

The new bourse is being heralded for its simpler listing process, including leaving it to the market how companies are priced. It’s also championed as a way of fast-tracking the sectors that the government wants to encourage, like smart manufacturing, biomedicine and semiconductors. That is indicative of Chinese ambitions for self-sufficiency in science and technology, areas where companies from the GBA are expected to play a major role. It will be interesting to see if the successful firms head off to Shanghai rather than Shenzhen when they want to go public.

Another Star Market goal is stemming the listings of innovative firms overseas. Hong Kong doesn’t quite fit into that bracket as an international market, although Shanghai has coveted its crown as the leading financial hub in the region for years. 

In fact, Hong Kong has been slipping down the global IPO league. A lack of blockbuster listings has been blamed for its third place, behind New York and Nasdaq, although that could quickly be reversed with a couple of big-ticket offerings. One of those might be internet giant Alibaba, which is said to be working on a $20 billion secondary listing. The even bigger catch would be Ant Financial, Alibaba’s financial offshoot. This time the question is whether the world’s largest unicorn (worth at least $100 billion, and counting) chooses Hong Kong or the new board in Shanghai.

Even if the Star Market starts to throw its weight around more, the impact on Hong Kong should be softened by Stock Connect, which allows investors in Shanghai and Hong Kong to trade shares on each other’s bourses, and Xinhua confirmed this week that a number of Star Market stocks would be open to offshore investors via the link. 

That may mean that Shenzhen could get more of a bruising as China’s tech firms try their luck on the new board in Shanghai. Planners don’t seem to have prioritised Shenzhen’s role as a financial hub either. In the State Council’s blueprint for the Greater Bay Area earlier this year it was positioned as “a national economic core city” and a “national innovation city”. Hong Kong got a different focus, with a mention of its role as “an international financial hub”. 

In fact Shenzhen’s tech-heavy, small-cap exchange has had a rough time recently, not just on the news that it has an ambitious new competitor in Shanghai, but also because of the row with Washington over Huawei, which has made trading in tech stocks more volatile in general.

Shenzhen has history of making way for Shanghai’s financial ambitions too. The country’s earliest futures exchange was started there, as was Junan Securities, the biggest local brokerage in the 1990s. Both eventually moved to north to China’s commercial capital.