Chinese tech stocks are rallying, following in the footsteps of their counterparts in the U.S that are trading at record highs on shrugging COVID-19 concerns. While solid earnings have been a key driver of U.S tech stocks, in China, it is the relaxation of IPO tech rules that appears to be fuelling a buying spree in the tech sector.
Revised IPO Listing Rules
The Nasdaq-like Shenzhen Stock Exchange has relaxed listing rules, a development that has gone well with the market. Eighteen small and medium-tech firms have already taken advantage of the new rules, conversely listing their stocks in the tech-laden exchange.
The listing has attracted strong investor interest seen by some stocks popping more than 200% as medical equipment manufacturer Contyec Medical Systems rallied more than 1,000%. The meteoric rise stems from the lack of limits to how many the stocks can fluctuate until the end of the week.
The relaxation of IPO listing rules has since reduced the wait times from months or even years to a few days. Regulators have since delegated the responsibility of approving listing to exchanges such as Shenzhen stock, conversely enhancing the listing process.
Companies planning to go public under the new IPO laws will no longer need authorization from the China Securities Regulatory Commission. Stocks will also be allowed to rise and fall by up to 20% from the current 10%, conversely providing more room for fluctuation. However, there are concerns that extreme fluctuations could inflate China’s already big technology bubble.
The changes come amid escalating tensions between the U.S and China in the U.S. The U.S has threatened to block the listing of Chinese companies in the U.S alleging continuous stealing of U.S technologies by Chinese companies.
In addition, the reforms should help strengthen China’s capital markets appeal at a time when investment focus has shifted towards tech stocks. Likewise, the new listing rules provide an ideal pathway for listing at a time when most Chinese companies are facing the risk of being delisted in the U.S. The loose IPO listing regulations could help accelerate the decoupling between the U.S and China in areas of technology.
Beijing has since swung into action to prevent tech firms from listing overseas as a way of ensuring companies tap the vast wealth of local investors. How successful Beijing will be on convincing companies to list at home is still a point of discussion. The fact that Beijing exercises lots of controls over the markets has seen companies opt to list abroad.
Economic Recovery Push
Listing of tech firms in China is also part of Beijing’s bid for reinvigorating the struggling economy in the aftermath of the COVID-19 pandemic. Beijing is essentially trying to accelerate capital market structuring in a bid to revitalize the struggling economy
The communist government has also moved to channel much-needed capital to coronavirus hit companies and innovative startups in addition to easing the listing requirements. The end game is to try and battle economic slump while positioning the country to better compete for technological supremacy against the U.S