China’s new Nasdaq-style tech board gains ground

Spinoff listing on the tech board is an attractive investment theme for the stock market
Chief Investment Office20 Jun 2019
Photo credit: AFP Photo


China’s new Nasdaq-style tech board could become a hotbed for companies to spin off and list units domestically, something that has not been much of an option until now.

At least nine companies listed in Hong Kong and mainland China have decided to or are considering spinning off parts of their businesses on the freshly launched SSE STAR Market. One of them, Western Metal Materials Co Ltd, surged by the 10% limit for two days in a row after disclosing its plans in early April. Lepu Medical Technology Beijing Co Ltd climbed 13% over a similar timeframe.

The Shanghai and Shenzhen stock exchanges have been inundated with investor queries about spinoffs on the new board, where the first listing is expected in the next two months. The bourse is in part aimed at stemming an exodus of listings by innovative Chinese firms. Suzhou HYC Technology Co Ltd is the first to start an initial public offering there, filing a preliminary prospectus this week (ending 21 June).

Investors and companies were encouraged by the China Securities Regulatory Commission (CSRC) saying earlier this year that companies of a certain scale would be able to list qualified subsidiaries separately on the tech board, though it did not elaborate. The CSRC, which has historically been reluctant to approve spinoffs at home, did not immediately respond to a request for comment.

Domestic spinoffs appeal as they would give investors on the mainland fresh buying opportunities in China, while parent companies can potentially streamline operations and have seen boosts – at least in the short term – to their share prices. The nine companies that announced spinoff plans all rose in subsequent days.

The tech-heavy ChiNext Index trades at around 20 times forward earnings, while Hong Kong’s Hang Seng Index is at 11 times. Both gauges have had a rough few months as the trade dispute with the US escalated, but they have still posted gains year-to-date despite slipping from April highs: the ChiNext is up 18% in 2019 and the Hang Seng has added 9%.

The newly named SSE STAR Market has attracted attention in part because of its simpler listing process, including waiving restrictions on how companies are priced, theoretically making it less onerous for applicants. It has not all been clear sailing though: the Shanghai exchange has complained that many filings lacked sufficient details and contained too much jargon. – Bloomberg News.

The Shanghai Composite Index rose 0.96% to 2,917.80 and the Hang Seng Index climbed 2.56% to 28,202.14 on Wednesday (19 June).



Indonesia is on track to join the Philippines in a new monetary-easing cycle as a darkening global outlook forces Asia’s most aggressive interest-rate hikers of recent times to reverse course.

While Bank Indonesia is widely expected to leave its benchmark rate unchanged Thursday (20 June), the central bank has offered its strongest signal yet that cuts are on the horizon. Bangko Sentral ng Pilipinas, which pulled the trigger with a quarter-point reduction in May, is seen moving again on the same day.

Indonesia and the Philippines each hiked interest rates by 175 bps last year, which helped their currencies rebound and kept inflation in check amid an Emerging Markets rout. But in 2019 the story has changed: waning global demand, a worsening US-China trade war, and a cautious Federal Reserve is making Asian central banks from India to Australia shift toward looser monetary policy to bolster economic growth.

While Philippine inflation quickened last month, it remains within a 2-4% target and had been slowing since October. But with disappointing economic growth in the first quarter, Bangko Sentral Governor Benjamin Diokno may further step on the monetary easing gas. A survey by Bloomberg shows 16 of 24 economists predict a 25 bp cut to 4.25% on Thursday.

Bank Indonesia Governor Perry Warjiyo this week (ending 21 June) said there is room to ease monetary policy, after earlier warning that Southeast Asia’s biggest economy will probably grow below the midpoint of a 5-5.4% forecast this year. But the risk of global uncertainty once again rattling financial markets and spurring capital outflows is complicating his decision.

Only six of 34 economists in a Bloomberg survey, which started before Warjiyo made his comments this week, see a lowering of the benchmark rate to 5.75% on Thursday, with the rest predicting a hold. A surprise cut would be Indonesia’s first since September 2017. – Bloomberg News.

The S&P/ASX 200 Index inched 0.05% lower to 6,644.60 in early-Thursday trading, reversing its 1.19% gain to 6,648.13 the previous session.

South Korea’s Kospi Index opened little changed at 2,125.05 on Thursday. The benchmark rose 1.24% to 2,124.78 on Wednesday.

The Taiwan Stock Exchange Weighted Index (Taiex) climbed 1.97% to 10,775.34.



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