Friday marks the end of the first week of trade for a new Nasdaq-style board in Shanghai, called the Star Market. And what a stellar week it has been.
There were 25 initial public offerings, as the Star Market launched on Monday. They averaged a leap of 140% on the first day's trade.
China's stock markets are extraordinarily dominated by retail traders, who account for around 80% of trade. Many view stocks as a quick punt for short-term gain. It's popular to gossip about how to chau gu piu, in Cantonese, or to "stir fry stocks" by flipping them.
The second day of trade, not surprisingly, saw a small selloff. But many of the shares continued to post gains the rest of this week. They rose 11% on average on Wednesday, and 5.5% on Thursday. Chinese markets are posting narrow gains on Friday, despite selloffs elsewhere in Asia following lackluster U.S. earnings on Thursday.
More than 80% of the shares listed that are not subject to a lockup have now changed hands on the Star Market, according to Lianxun Securities analyst Peng Hai, and Reuters.
That saw the 25 companies on the new bourse generate 48.5 billion yuan in turnover on Monday, equivalent to 13% of the total turnover of the nearly 4,000 stocks in Shanghai and Shenzhen.
Retail investors who didn't luck out in the lottery of applying for IPO shares have been big buyers in the aftermarket. Institutional investors have been the sellers.
The pricing represents "extreme optimism in the market," Lian Zhou, the founder of the Shanghai-based hedge fund Minority Asset Management, told Reuters. His company secured several hundred million yuan in shares in the IPOs, and has sold a "good portion" of those holdings in the subsequent week.
There has been no limit on the rise or fall of Star Market stocks in the first week of trading. As of the coming Monday, Star Market stocks will have a 20% maximum one-day limit up or down, double the 10% limit for other stocks in Shanghai and Shenzhen.
Investors have to have at least the equivalent of $73,000 in investment assets to participate in Star Market share trading. Around 4 million investors have registered so far.
We have been down this path before. China launched a Nasdaq-style board in Shenzhen called the ChiNext a decade ago. After initial optimism, that market has lost its way, and many of the listed companies remain penny stocks.
There are around 150 companies waiting in the wings to list on the Star Market. But it appears that supply will be lapped up by eager investors.
Analysts say the current valuations on the Star Market, which has liberalized listing rules compared to the main exchanges in Shanghai and Shenzhen, bear no reality of fundamentals.
Another tradition among stock investors in China is to jump in when the going is good, then complain to the government when the market turns bearish, demanding that the Communist Party cover their losses.
According to the Star Market, it will operate according to the concept of the "four awes" -- to stand in awe of the market, rule of law, professionalism and risk -- and "one joint force," that the development of the capital markets "needs all the efforts made by all sides."
Whatever that means.
More specifically, the Star Market will focus on listing companies in the fields of information/technology, high-end equipment, new materials, new energy, green energy and biotech.
Skeptics note that there are plenty of blowouts in such industry sectors, alongside a handful of "unicorns." So investors should likely temper their optimism.
That concept of a unicorn that soars to a valuation of US$1 billion or more was coined by the American-born Chinese venture capitalist Aileen Lee, and is an obsession among Chinese investors.
Yet a Chinese unicorn was born every 3.8 days last year, according to a Hurun Research Institute report. There were as of the start of the year, 186 Chinese companies with an external valuation of at least $1 billion, led by Alibaba Group Holding (BABA) digital-payments arm Ant Financial, the news aggregator Toutiao, and ride-sharing giant Didi Chuxing.
The most-basic listing rule for Star Market stocks is that they have a market capitalization of at least 1 billion yuan, or about $145.4 million, and have posted a net profit of at least 50 million yuan over the last two years. Beyond that, anything goes.