ChiNext is Launched
By David Feldman at 29 November, 2009, 9:32 am
Just before my last trip to China earlier this month, China launched its long-awaited smallcap stock exchange, dubbed ChiNext, on October 30. The market is also known as the Growth Enterprise Market, or GEM. It is part of the Shenzhen stock exchange in Guangdong province. Containing more entrepreneurial enterprises than you see on the larger PRC exchanges, 28 stocks started trading initially. A number are biotech, energy, medical technology and entertainment. The most are biotech (6 of the 28). In just the first two days of trading, these companies raised a total of about $2 billion in their IPOs and had a market capitalization of about $19 billion. The stocks cannot gain more than 20% or lose more than 10% in a day, or trading is stopped. US investors cannot invest directly but can through ETFs. According to Yahoo Finance, almost 200 more companies have applied to be put on the GEM.
For those of us who help Chinese companies go public in the US, what will be the impact? Some call it a game changer. Local PRC investors and venture and hedge funds presumably will step forward to support the companies on the GEM. One does not know in advance how much market support there will be for these stocks, if it is strong it could indeed make a real difference for these companies. My view: it’s great for everyone. There are many exciting growth companies in China, and there is room for a robust local market as well as an opportunity for these companies to go public elsewhere. As is true here in the US, the PRC government very carefully regulates its securities markets. One assumes that some companies will be content to limit trading to local investors (or foreigners investing indirectly), and others may feel other benefits to trading here or elsewhere.
More importantly, the old adage “a rising tide floats all boats” applies as well. The Chinese government, by launching GEM, is making a strong statement that these smaller middle market companies (called SMEs, or small and medium sized enterprises) are worthy of support, financing and a public market for their stock. By bringing positive attention to the opportunity to invest in smaller companies, China benefits all who are active in this space. Will the US players lose some great companies that decide to go public locally? Yes. Will there be other companies who will prefer to go public here? Also yes. Let’s cheer GEM and wish for its success for the benefit of all who play in smallcap land.
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