Chinas Sci-Tech Board Hope Or Hype?Jul 12, 2019

Key Points

  • China will be launching a Nasdaq-style stock market for technology and research-driven companies to list and raise capital. We believe this upcoming science and technology innovation board is of strategic importance to China. It could rev up China’s emergence as a research powerhouse while the country battles accusations of intellectual property theft and technology sanctions from the United States.
  • The sci-tech board looks set to broaden companies’ access to private capital. It is also a test case for capital market reforms—changes to the initial public offering (IPO) and trading mechanisms could be rolled out to China’s main boards if they succeed. Moreover, the board could push China’s industries up the value chain, by channeling funds to homegrown businesses developing innovative capabilities.
  • The board has its detractors. For many, worries of speculation loom large. However, we believe China has gleaned lessons from the past, and regulators have adopted measures to defend market stability.
  • As fundamental investors, we will be watching at least two key factors—the quality of companies listed and their valuations. The board could help emerging companies grow into industry champions. But identifying companies with the right potential would require investors to have strong research skills. Meanwhile, short-term valuations could be choppy, even if extreme froth is curbed. Until we can identify compelling investment opportunities, we are likely to stay on the sidelines.

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