Nurturing tech SMEs with timely funding
1-year-old BSE, China’s youngest bourse, finds firm foothold to grow against odds
The launch of the BSE 50 index provides a benchmark for investors. More products can be developed by referring to this index.”
As of Dec 1, the number of listed companies on the Beijing Stock Exchange, China’s newest bourse, reached 131, up 62 percent from 81 when trading began on Nov 15 last year.
Launched to nurture China’s technologically advanced small and medium-sized enterprises, the BSE has made steady yet impressive progress in its turbulent first year of operations. It is an achievement that has come against a variety of odds, chief among them being COVID-19 headwinds and the wayward trend of key indices on other bourses in China, industry experts said.
Market mavens are pleased the BSE has already found a firm foothold, and are confident more capital will flow into the bourse, enhancing market liquidity and strengthening the exchange’s trading mechanism.
What is more, many BSE-listed companies have used IPO proceeds to make breakthroughs in key technologies, break monopoly of foreign companies in certain sectors and come up with China-made substitutes.
So, confidence in the BSE’s future is rising, with the latest shot in the arm coming from the BSE 50 index, which was officially launched on Nov 21.
BSE data showed 50 constituent companies of the index account for 71 percent of the total market capitalization. These companies are from high-end equipment, new energy, technology software and hardware, new materials and biopharmaceutical industries.
Data from market tracker Wind Info showed that over 80 percent of the BSE-listed companies are from strategically emerging industries and advanced manufacturing industries like information technology and high-end equipment.
Nearly 20 of the BSE-listed companies are “little giants” — SMEs specializing in niche industries with cutting-edge technologies and great growth potential — recognized by the Ministry of Industry and Information Technology.
“The launch of the BSE 50 index provides a benchmark for investors. More products can be developed by referring to this index,” said Yan Yang, a portfolio manager at China Universal Asset Management.
Right after the launch of the index, at least six prominent Chinese asset managers, including China Asset Management, China Southern Asset Management and E Fund Management, announced the launch of products based on the BSE 50 index.
That will help investors to broadbase their portfolios. If the success of the STAR Market 50 index of the Shanghai Stock Exchange is any indication, additional capital will likely flow into the BSE as more products that will track the BSE 50 index will be developed soon, said Li Zhan, chief economist with China Merchants Fund.
On Nov 11, four days before the BSE’s first anniversary, the bourse announced margin trading rules. Experts from Guotai Junan Securities said it is another major step forward for the BSE as the new rules will establish its trading mechanism on a firmer footing. This would mean that leveraging will provide investors a range of trading strategies and risk management methods.
In the first three quarters of the year, total sales revenue of the BSE-listed companies surged 33.25 percent year-on-year to 73.2 billion yuan ($10.4 billion), with total net profit surging 19 percent to 6.9 billion yuan.
Data from Wind Info showed that in the January-September period, the BSE-listed companies allocated more than 4 percent of their sales revenue to research and development, with the average R&D expenditure soaring by 33.1 percent year-on-year.
Zhao Haohua, chairman of Changzhou Tonghui Electronics, said the company has been able to focus on its prime business and make independently developed and controllable technologies, thanks to the funding received from its BSE float.
“The presence of technology companies will be thus more widely found in the A-share market,” said Zhao.
Pesticide intermediate and formulation provider Nutrichem Co Ltd was one of the first companies to start trading on the BSE on Nov 15 last year. Wang Rong, chairman of Nutrichem, said a new financing channel has been provided by the BSE to SMEs focusing on technology advancement. Nutrichem has managed to strengthen its links with companies throughout the industrial chain and expand its scale of operations, he said.
Chen Li, chief economist of Chuancai Securities, said the BSElisted companies have managed to make their products, services or their features novel, more professional, precise and even unique. Such characteristics have now come to be the fundamental requirements and positioning of the BSE, which is helping the BSElisted companies to realize higher gross profit margins than their unlisted peers.
A significant number of the BSElisted companies were hitherto listed on the National Equities Exchange and Quotations or the new third board. As long as the companies concerned meet certain financial requirements and also had been listed for one year on the innovation tier of the new third board, which is the NEEQ’s highest level, they can directly transfer for trading on the BSE.
The two trading venues are thus better connected, which elevates both their liquidity and trading activity, said Chen.
Sun Jinju, vice-president of Kaiyuan Securities, labeled the new third board as an “incubator” for the BSE. A number of reforms were carried out at the new third board in 2021, including introduction of the convertible bond mechanism and lowering of the threshold at the innovation tier.
SMEs’ financing demand at the preliminary stage, he said, can be better satisfied. The new third board can thus nurture more quality SMEs, which can later go public on the BSE.
The innovation tier of the new third board has seen 1,723 companies list. Up to 557 of them have entered this highest tier of the new third board this year, and nearly 70 percent of them are now financially eligible to be listed on the BSE.
SMEs can better understand and enter the capital market using the BSE route. They can further regulate their management mechanism and stimulate more driving force for development, said Fan Xiaoxin, deputy director of the China Association of Small and Medium Enterprises.
During the Annual Conference of Financial Street Forum 2022 held in Beijing from Nov 21 to 23, Shang Qingjun, an official of the public company department of the China Securities Regulatory Commission, said that more efforts should be made to expand the size of the BSE and further improve the overall quality of the exchange.
“While the BSE’s current market liquidity and evaluation are generally in line with SMEs’ characteristics, they are still distant from the market’s high expectations. In this sense, more industry leaders with core competitiveness should be listed on the BSE as soon as possible. A larger market scale is the foundation of higher liquidity and product innovation,” he said.
Innovation will mark the BSE’s operations. Margin trading should be advanced and more trading mechanisms explored. More longterm capital and different types of investors should be introduced, Shang said.
Reform at the new third board should be deepened to better connect to the BSE. The CSRC will better support the technology innovation companies that are younger and smaller so that more of them can be prepared for listing on the BSE. The new third board should better link the public and private markets to facilitate the early financing of smaller startups, he said.
“The new third board and the BSE are still young in the overall capital market. They will thus ask for more tolerance and support. But the CSRC will stick to the basic market rules as well as laws and regulations to create an ideal financing venue for innovation-oriented SMEs. In this sense, the Chinese capital market can become more inclusive,” Shang said.
Agreed Wang Yuqing, an analyst from Shenwan Hongyuan Securities. He suggested that more financing products be rolled out on the BSE in the future, including carbon neutrality-themed bonds, innovation-themed bonds and renewable bonds.
Yan Yang, a portfolio manager at China Universal Asset Management