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China’s Nasdaq Minted Billionaires On Day 1, Then Crashed

China's Nasdaq

Many everyday investors consider the tech-heavy NASDAQ the home of volatility and sky-high valuations. Well, its Chinese contemporary has just made its debut and is already looking to emulate those very qualities. China's new tech exchange, STAR Market, made a flying start on Monday with stocks of 25, mostly technology, companies listed on the platform jumping 140 percent and making three high-profile investors overnight billionaires.

The frenzied buying helped total market capitalization to more than double from 225 billion yuan ($44.5 billion) to 529 billion ($104.7 billion). 

About 48.5 billion yuan ($9.6 billion) worth of shares changed hands on the day--about 13 percent of the day's turnover for the Shenzhen and Shanghai exchanges. 

Leading the charge was Anji Microelectronics Technology (Shanghai) Co with a market-leading 400-percent gain.

Tech superpower

Investors can thank the lack of daily price limits for the first five trading days for the impressive surges (subsequent days are capped at 20 percent in either direction).

However, Star investors have also learned the hard way that volatility is a double-edged sword. The market came off its high perch on the second day of trading, erasing about nine percent of its value in a spate of rampant profit taking. 

All but 4 of the 25 companies fell leading to a loss of nearly 7 billion yuan (on paper) for the newly minted billionaires. 

Luckily, they all managed to hold on to their claims to three-comma fortunes.

Related: Chinese Investments In the U.S. Plunge 90% Under Trump

China Railway Signal & Communication Corp. was the biggest loser on the day with shares tanking 18.4 percent. However, the shares still managed to close the day 71 percent above the initial offer price. Tom Zhou, a fund manager at Shanghai River East Asset Management, says high initial volatility is to be expected as investors try to figure out fair valuations but expects the situation to normalize with time.

The new exchange is part of China’s quest to achieve tech superpower status. President Xi’s government hopes to use the board to tap into the vast wealth held by local investors and also entice giants like Alibaba, Inc.(NYSE:BABA) and Tencent Holdings Ltd (TCEHY) to list at home. Regulators are using the exchange as a testing board and have waived restrictions on valuations including allowing unprofitable companies as well as those with unequal voting rights to participate.

Opening up markets

Investors interested in tracking the new market will have to wait a little bit longer when the Shanghai Stock Exchange launches one on the board on the 11th day of trading--around the time when the 30th company is expected to join the platform. Many more could soon follow--since March, nearly 150 Chinese firms have applied to list on STAR Market. The board says it will also accept companies already listed on in Hong Kong while qualified foreign investors will be allowed to buy and sell shares on the platform.

By giving market forces a greater role in setting prices and allowing looser trading rules, Beijing is proving it really is committed to opening up its erstwhile opaque financial space. Investors can now play in the nation’s vast $13-trillion bond market via the Bloomberg Global Aggregate Index and even trade in its commodity futures.

Last week, the Chinese State Council said that it will permit foreign-funded agencies to perform credit rating appraisals for all types of bonds. The PBOC says it has deemed it necessary to do this so that to improve the quality of the country’s rating industry and also boost investor confidence.

By Alex Kimani for conil.me

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