Hold on for the ride: China’s STAR Market sees bumpy start to market-oriented reforms

Initial observations from Invesco Great Wall about China’s new tech board.

Invesco Great Wall fund manager Cheng Zhan shares his views on the impact and implications the STAR Market has for China's technology sector and capital market.

Aug 2, 2019 | Ruiwen Yang and Cheng Zhan

The STAR Market came into operation on the Shanghai Stock Exchange on July 22 and we have seen big fluctuations in share-price movements. As long-term, fundamentals-driven active managers, we at Invesco Great Wall think that clearer picture of the board's progress should emerge in six months' time.

In the meantime, we remain cautious of how stocks on the board are performing. Trading on the board is still risky given that some of the board's rules have never been tested before in China's domestic equity market. As such, we have internally set a low limit on how big of a percentage STAR Market stocks can take up in our strategies. 

Nevertheless, we applaud the innovations that the STAR Market brings to China's equity market. Currently, in the A-share market, there are many shell companies, or those performing very poorly yet commanding high valuations. Supportive market-reform policies and the practice of short selling - both being trialed on the STAR Market - can uncover the true value of these companies. Ideally, over time, poorly-performing companies should see big corrections in their valuations, while good ones should enjoy market recognition and therefore, significant premiums. With careful management, we think that about 100 companies can be listed on the board by year’s end.

As such, the STAR Market can foster a sense of "survival of the fittest" among listed companies in China's equity market. There is a hope that in due time, these innovations that the STAR Market can also be rolled out across other stock markets in China. We think that we would need at least a year's time before this can start to happen.

For now, we maintain that a professional, fundamentally-driven, long-term active approach is key to mitigating risks and uncovering opportunities on the board. 

We think that there are attractive investment opportunities in high-tech companies from sectors including artificial intelligence, big data, cloud computing, biomedicine, new-energy vehicles, semiconductor, internet and high-end equipment. We like these companies, because many of them have capable management teams that have managed to tap into tap into China’s domestic market potential, technological innovation and engineering prowess to raise their competitiveness.

Ruiwen Yang is Deputy CIO of Active Equity and Fund Manager at Invesco Great Wall. Cheng Zhan is Fund Manager at Invesco Great Wall.

Related articles

Important information

This document has been prepared only for those persons to whom Invesco has provided it for informational purposes only. This document is not an offering of a financial product and is not intended for and should not be distributed to retail clients who are resident in jurisdiction where its distribution is not authorized or is unlawful. Circulation, disclosure, or dissemination of all or any part of this document to any person without the consent of Invesco is prohibited.

This document may contain statements that are not purely historical in nature but are "forward-looking statements", which are based on certain assumptions of future events. Forward-looking statements are based on information available on the date hereof, and Invesco does not assume any duty to update any forward-looking statement. Actual events may differ from those assumed. There can be no assurance that forward-looking statements, including any projected returns, will materialize or that actual market conditions and/or performance results will not be materially different or worse than those presented.

The information in this document has been prepared without taking into account any investor’s investment objectives, financial situation or particular needs. Before acting on the information the investor should consider its appropriateness having regard to their investment objectives, financial situation and needs.

You should note that this information:
•    may contain references to amounts which are not in local currencies;
•    may contain financial information which is not prepared in accordance with the laws or practices of your country of residence;
•    may not address risks associated with investment in foreign currency denominated investments; and
•    does not address local tax issues.

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. Investment involves risk. Please review all financial material carefully before investing. The opinions expressed are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

The distribution and offering of this document in certain jurisdictions may be restricted by law. Persons into whose possession this marketing material may come are required to inform themselves about and to comply with any relevant restrictions. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation.