What the Media Is Getting Wrong About China's 'New Nasdaq'

Some people just want to complain – even in the stock market...

Last week, we wrote to you about the spectacular launch of China's "New Nasdaq" exchange in Shanghai.

The debut of the STAR Market was like nothing you've ever seen. The worst performer was an 80% gain... while the best performer multiplied its IPO investors' money as much as sixfold. And the average first-day gain for all 25 stocks was a blistering 140%.

Naturally, after a move like that, you'd expect some profit-taking. And it did happen.

The second day of trading saw all but four of these stocks decline in value. "That's great," I said to myself. "Things are cooling off a little. This is exactly what the market needs."

Then, I saw these headlines when I opened my computer in the afternoon...

"The Stock Frenzy in China's New Trading Venue Is Already Fading"

"China's answer to Nasdaq turns out to be a one-day wonder after all"

It was a clear attempt to downplay the most exciting thing to happen to China's stock markets in more than a decade.

Compared to the first day's 140% gain, stocks fell only 7.9% on average the second day. And for the rest of the week, they've basically held their ground. Anyone can see that this is still a big win for China's new market.

Even better, this new bull market is just getting started. Let me explain...

This situation is inherently different – and far more lucrative – than previous China stock bubbles.

The STAR Market is President Xi Jinping's pet project... And he's making every effort to ensure that it attracts China's best and brightest companies. So China has put several key measures in place to achieve that.

One of them was to require IPO sponsors (i.e. brokers and investment banks) to own between 2% and 5% of the listed shares. And they're required to hold on to these shares for two years.

This means brokers, investment banks, and everyday investors now have a shared interest in seeing the STAR Market grow steadily in value over time.

That's certainly no guarantee that stocks will continue rising. But it goes a long way toward building confidence in the new market, especially among China's 140 million individual investors.

This is a big reason why a growing number of China's tech darlings are looking to list on the STAR Market. That includes Transsion, a Chinese mobile-phone manufacturer that already dominates the booming African smartphone market.

UBTech Robotics and DJI – the world's largest manufacturers of robotics and commercial drones, respectively – are lining up to add listings as well.

The initial 25 stocks that listed on the STAR Market had an average market capitalization of only $1.3 billion upon listing. They were, for the most part, small companies. But these three tech pioneers alone have a combined valuation of $24 billion. That's $8 billion each.

Companies like these will almost certainly attract a lot of investor interest, both local and foreign.

Beijing is also laying the groundwork to allow tens of billions of dollars from foreign investors to start flowing into the STAR Market...

I'm talking about the Qualified Foreign Institutional Investors ("QFII") program. Launched in 2002, it allows foreign funds to buy and sell a fixed amount of China-listed "A-shares" (stocks trading locally in mainland China).

The limit started at just $80 billion in 2012. From there, it more than doubled to $150 billion in 2013... and then doubled again to $300 billion in January 2019.

Now, officials are talking about scrapping the QFII limits altogether.

This is HUGE news. It means foreign institutional investors will be able to freely buy and sell an unlimited number of A-shares... just like foreign funds are able to trade shares of Amazon and Apple in the U.S.

When companies like Transsion, UBTech, DJI, and a host of other Chinese tech giants start to trade on the new exchange, you're going to see a torrent of money flowing into China's stock market.

We've seen this before. When the Nasdaq launched in 1971, it created a market where the most promising technology stocks in the U.S. could easily raise money and grow. Today, it's the world's second-largest stock market, worth $11 trillion.

A similar thing could happen this time around... in China.

The New Nasdaq is here. The sooner you stop listening to the negative press, the sooner you'll put yourself in a position to profit.

Good investing,

Brian Tycangco

P.S. You don't want to miss the boom that's setting up now in Chinese stocks. That's why Steve has put together a special presentation with more details on what the STAR Market means for investors... Check it out right here.

Further Reading

"Look, I'm no preacher for all things China," Brian writes. "The problem is, bias against China could be costing you a lot of money." Find out what the American media isn't telling you about the country's leading tech giants right here.

Steve predicts the STAR Market will kick off an absolute mania in Chinese stocks... And he says it could be the biggest boom since the dot-com bubble. To find out why, check out his two-part series here and here.

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

W.R. Berkley (WRB)… insurance
Assurant (AIZ)… insurance
Blackstone (BX)… asset management
Visa (V)… credit cards
MasterCard (MA)… credit cards
Discover Financial Services (DFS)… credit cards
Shopify (SHOP)… e-commerce
Texas Instruments (TXN)… semiconductors
Analog Devices (ADI)… semiconductor equipment
Marvell Technology (MRVL)… semiconductor equipment
Universal Display (OLED)… lighting and displays
Live Nation Entertainment (LYV)… live concerts
Churchill Downs (CHDN)… gambling
Hasbro (HAS)… toys and games
Restaurant Brands (QSR)… Burger King, Popeyes
Chipotle Mexican Grill (CMG)… burritos
Denny’s (DENN)… diner franchise
Crown (CCK)… metal cans
Cummins (CMI)… truck engines
Heico (HEI)… airplane equipment
Brink’s (BCO)… armored cars
Stryker (SYK)… medical devices
Edwards Lifesciences (EW)… medical devices
Baxter (BAX)… hospital supplies

NEW LOWS OF NOTE LAST WEEK

Herbalife Nutrition (HLF)… multilevel marketing
Tupperware Brands (TUP)… multilevel marketing
Boingo Wireless (WIFI)… wireless hotspots
Michaels (MIK)… craft stores
Tailored Brands (TLRD)… Men’s Wearhouse
RPC (RES)… oilfield services