Since July 22, the SSE STAR Market has started trading for one month. In general, the SSE STAR Market has been characterized by stable operation, active participation of investors and increasingly effective functioning of mechanisms.
Q1: Can you give us an overview of the operation of the SSE STAR Market in the first month of trading?
A: Overall, the SSE STAR Market has been generally stable since its opening, the market enthusiasm has been at a high level, and the investor sentiment has gradually become more rational. From the perspective of the general trend, after the increases with fluctuations and the return to rationality, all the 28 companies listed on the SSE STAR Market have seen their stock prices rising so far, with an average gain of 171% over the issue price and a median increase of 160%. In terms of the industries, the stocks in the sectors of biomedicine and new generation information technology were among the top gainers; the stocks with small and medium-sized market capitalizations grew higher than those with larger market capitalizations. According to the performance of individual stocks, the volatility was within the expected reasonable range. During the first five trading days without the price limit, except during the first trading day, only two stocks triggered the in-session temporary suspension of trading, and in most cases, the stocks rose and fell within a range of 20%. After the price limit took effect, the price increases and drops of individual stocks narrowed further to less than 10%, and only 4 stocks reached the upper limit with a total of 5 times. From the perspective of trading activity, trading was at a high level in the early stage and then gradually stabilized. In the first month of trading, the SSE STAR Market recorded a total turnover (including after-hours fixed and bulk transactions) of RMB 585 billion, with an average daily volume of RMB 25.4 billion, accounting for 13.8% of the total in the SSE market. Currently the turnover rate has stabilized in the 10%-15% range from 78% on the first day of trading. From the perspective of the structure of investors, nearly 40% of the investors authorized to trade on the SSE STAR Market participated in the trading during the first month. Individual investors as natural persons were the main group participating in the trading on the SSE STAR Market, taking up 89% of the total transactions, compared with 11% for the specialized institutions. In the future, with the supply of new stocks normalized and the enthusiasm of investors stabilized, the valuation on the SSE STAR Market will gradually return to rationality.
Q2: Can you give us an overview of the margin trading and securities lending as well as refinancing on the SSE STAR Market?
A: In the first month of trading on the SSE SATR Market, the business of margin trading and securities lending operated well, with the balance of the business stabilizing after gradual increases. By August 20, the balance of the margin trading and securities lending amounted to RMB 6.032 billion, accounting for 6.54% of the listed tradable market value of RMB 92.286 billion. Specifically, the balance of margin trading stood at RMB 3.297 billion, accounting for 54.66% of the total balance of the margin trading and securities lending and 3.57% of the total listed tradable market value The margin amount of securities lending was RMB 2.735 billion, accounting for 45.34% of the total balance of margin trading and securities lending and 2.96% of the total listed tradable market value. In the first month of trading, the margin amount of the securities lending was stabilized on the whole in the range of 40% to 50% of the total balance of the margin trading and securities lending. In the same period, by August 20, the balance of the margin trading and securities lending on the SSE's main board was RMB 459.946 billion, accounting for 1.66% of the listed tradable market value of RMB 27.68 trillion, in which the margin amount of securities lending stood at RMB 3.942 billion, only accounting for 0.86% of the total balance of margin trading and securities lending.
By August 20, the margin of the securities lending in the business of securities lending of refinancing (the “securities lending” for short) on the SSE STAR Market was 153 million shares, amounting to RMB 4.574 billion, accounting for 4.96% of the total listed tradable market value of the SSE STAR Market. In the same period, by August 20, the margin of the securities lending on the main board of SSE stood at 125 million shares with an amount of RMB 1.441 billion, only accounting for 0.005% of the total listed tradable market value of the SSE’s main board.
Q3: Can you brief us on the companies whose applications for going public on the SSE STAR Market have been accepted?
A: By August 21, a total of 152 companies had their applications for issuance and listing on the SSE STAR Market accepted, and the overview is as follows. From the perspective of industry distribution, as the SSE STAR Market adheres to the mission of supporting the national strategies, the companies are concentrated in the areas defined in the implementation opinions of the SSE STAR Market. Specifically, there are 57 companies in the sector of new-generation information technologies, 34 in the sector of biomedicines, 28 in the sector of high-end equipments, 14 in the sector of new materials, and 19 in the energy-saving and environmentally-friendly new energy and other sectors. In terms of the listing standards, there are 129, 4, 1, 11 and 4 companies respectively choosing the listing standard sets 1 to 5 for the SSE SATR Market, and the other 3 companies selected the second set of indicators of “market value plus income” that is applicable to the differentiated voting/red-chip companies, with inclusiveness shown clearly. In terms of financial status, the average compound growth rate of income was 49% in the past three years. With regard to research and development, the R&D investment recorded an average percentage of 11.45% in the total revenue over the past one year. Overall, the companies with their applications accepted reflect the current development of China's enterprises of scientific and technological innovation on the whole, which is consistent with the development trend of modern technology companies characterized by high growth, strong capacity for research and development and scarcity.
Q4: The market feedback shows that the offering prices of the 28 companies listed on the SSE STAR Market were in line with most of the market expectations. Can you give us an overview of the issuance of the companies on the SSE STAR Market?
A: In terms of the static P/E ratio, in 2018 the range of the P/E ratios before deducting non-recurring gains and after dilution for the 28 companies was from 18 to 269 times, with the median at 45 times; the range of the P/E ratios after deducting non-recurring gains and dilution was from 19 to 468 times with the median at 48 times. Judging from the dynamic P/E ratio, the 28 companies have a median dynamic P/E ratio of 34 times based on the estimated earnings per share in 2019. The issuance P/E ratios of the vast majority of the companies were lower than those of comparable companies, and were within the sellers’ recommended valuation ranges on the whole, which was in line with market expectations. The issuance P/E ratios of the 28 companies were different, reflecting the differentiated value judgments in the market for varied industries and companies.
In terms of the pricing of the 28 companies, the market-based issuance mechanism of the SSE STAR Market has achieved initial results. Through the measures such as increasing the proportions for offline institutions, and piloting the skin-in-the-game system, the constraint mechanism of investment value research report and the mechanism of eliminating the highest quote, an issuance and underwriting environment characterized by relative rationality, independent judgment and tightened responsibilities has been formed. At present, the median numbers of the allocated amounts in the subscription of each offline account and each investor of the 28 companies have increased to RMB 390,000 and RMB 1.09 million respectively, which are 37 times and 62 times respectively those of the existing sector in the past three years. As a result, the constraints of offline quotes have been intensified effectively. The skin-in-the-game investment amounts of the 28 companies were from RMB 26 million to RMB 210 million, and a vast majority of the sponsoring institutions conducted rounds of negotiations with the issuers in pricing, reflecting the effect of skin-in-the-game mechanism.
Q5: Can you brief us on the continuous regulation of the SSE STAR Market since its opening?
A: Since the opening of the market, the SSE has strived to improve the quality of the companies listed on the SSE STAR Market and prevent all kinds of disorders from happening on the market. In reality, the information disclosure has been in a stable order on the whole, and the continuous regulation got off to a good start. First of all, the advantage of the SSE STAR Market has been brought into full play. There are a number of important institutional innovations in the continuous regulaton process, such as simplifying disclosure of redundant information and tightening the sponsors’ responsibility for continuous supervision, which have been implemented and played their roles in improving the effectiveness of information disclosure, clarifying the questions in the market and ensuring the market order in information disclosure at the early stage of the market launch. Secondly, the investors' concerns have been addressed in a timely manner. The announcements of the companies were reviewed promptly. As the core technologies of some companies listed on the SSE STAR Market were involved in patent lawsuits, under the guidance of the Listed Company Regulation Department of the China Securities Regulatory Commission (CSRC), the SSE worked with relevant agencies to timely take regulatory action, urging the companies to make clear explanations to the market and pushing the sponsoring institutions to issue verification opinions, so as to fully satisfy investors' right to know and alleviate market concerns. Thirdly, effective efforts have been made in regulating and serving the information disclosure. In the early stage of the launch of the market, the SSE organized and completed the first workshop on the qualification of secretaries to the directorate for the companies listed on the SSE STAR Market, so as to specify the red lines and mine fields in regulated operation and information disclosure. At the same time, the SSE carried out “one-on-one” communication with the first batch of companies listed on the SSE SATR Market, and guided the companies in grasping the information disclosure business face-to-face, so as to ensure “zero error” in information disclosure and business operations.
Q6: Since the launch of the SSE STAR Market, the investors have been active in participation. Can you brief us on the regulation of abnormal trading behaviors in the first month?
A: Since the listing of the first batch of companies on the SSE STAR Market, the SSE has strengthened the monitoring of the violations in accordance with the “Detailed Rules for Real-time Monitoring of Abnormal Trading of Stocks on the SSE STAR Market (for Trial Implementation)”, so as to ensure the orderly operation of market trading. On the whole, although the enthusiasm of the investors is at a high level, most investors have stood in awe of the rules, with few violations of the “red lines”. During the period, a total of 8 cases of abnormal trading were found, including 5 cases of pushing up or pulling down stock prices and 3 cases of false order placing, on which the self-regulatory measure of written warning were imposed.