Tech stocks heat up China’s summer trading season

Beijing, Sep 4 (efe-epa).- The stock markets in mainland China have been trading at their highest levels in five years buoyed by tech stocks, with the latest possible shot in the arm being the upcoming listing of the financial technology giant Ant Group that may even become the biggest IPO.

The CSI 300 index, which tracks the 300 biggest stocks in the Shanghai and Shenzhen exchanges, has defied the predictions of analysts, who had advised caution despite the sustained rise citing its volatile character.

The index, which touched its highest level since 2015 on July 13, has only dropped around 0.74 percent since then, displaying a sort of plateau, which has kept the Chinese markets at their best levels in the last five years.

This year, the combined tracker of China’s biggest companies has risen 16 percent despite the pandemic, or maybe even because of it.

“The economic figures are bad. But the stock markets, not just the Chinese but also in the United States and other major countries, are at a high level,” Zhang Gang, the chief analyst at Southwest Securities, told EFE.

He said the central banks of the major world economies, such as the Federal Reserve of the US and the European Central Bank, have launched “policies of basically unlimited monetary flexibility” and flooded the market with liquidity to try and soften the impacts of Covid-19.

“Although the People’s Bank of China said it wouldn’t flood liquidity into the market, fresh loans worth over 10 trillion yuan ($1.46 trillion) have been released since the beginning of the year,” he said.

According to Zhang, the stock-market surge is due to share trading being the “only option to earn quick money,” although he warned of the risk of the bubble bursting soon.

“It wouldn’t last long, because after all the markets are high, and the higher they climb, more money is needed to sustain them.”

The leader of summer trading in China has been the Shanghai stock exchange’s STAR market, also known as the “Chinese Nasdaq” due to its focus on tech stocks, which has witnessed 66 listings worth $14.1 billion – six more than even the New York-based Nasdaq.

The STAR, which completed a year in July, has managed to bag some high-profile debuts this summer – with the share values of some companies rising 10 times within the first day – after the easing of internal market norms regarding the permissible price deviation during the first few sessions after listing and the price-earning ratio.

Zhang said these measures had resolved the problem of finding financing channels for many companies, although adding that there were similarities between the current scenario and the dot-com bubble of the late 1990s.

“The investors hope that the Chinese tech companies would become Apple or Tesla, but that is just a wish.”

The surge in Chinese stock markets has a geopolitical explanation also.

In the backdrop of the ongoing conflict between Beijing and Washington, some Chinese companies listed in US markets are facing the threat of being thrown out, sending alarm bells ringing in their home country.

“With more Chinese companies facing the risk of being delisted from US stock exchanges, the Chinese government is ensuring that its growing number of domestic tech boards (…) provide an attractive safe haven for Chinese companies,” said Caroline Meinhardt, an analyst at the German think-tank Mercator Institute for China Studies.

Moreover, STAR is not the only option being offered by China, as norms were also eased recently at ChiNext, the tech market at the stock exchange in Shenzhen, also known as the “Chinese Silicon Valley.”

However, Meinhardt warned that “even as tech IPOs flourish in China, warnings about the risks of a tech bubble are getting louder.”

On the other hand, Zhang was slightly more optimistic. “As the number of listed companies grows, the phenomenon of massive price surges would tone down.”

As the summer comes to an end, all eyes are now on the Ant Group, a subsidiary of e-commerce giant Alibaba that has developed the group’s payment app Alipay, one of the most used in China along with its rival WeChat Pay, owned by Tencent.