Investors hunt for gold ahead of debut of China’s Nasdaq-like tech board

Mainland investors are racing to buy mutual funds linked to Shanghai’s new Nasdaq-style technology board in the expectation that these funds will have privileged access to upcoming initial public offerings, potentially enjoying handsome returns upon public trading.

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As of Tuesday, the first batch of seven funds slated for the Technology Innovation Board were heavily oversubscribed by investors, raising a combined 100 billion yuan (US$14.86 billion), according to the statements by the asset management firms.

“Optimism about the trading outlook for the technology firms resulted in strong sales of the funds,” said Ivan Li, an asset manager with hedge fund Loyal Wealth Management. “Mainland investors have faith in IPO shares and they are convinced that the companies set to list on the new technology board will bring them handsome returns.”

Mainland mutual fund houses can issue new products to raise funds subject to the approval by the China Securities Regulatory Commission (CSRC).

The country’s largest fund management firms including China Asset Management and China Southern Asset Management were among the first institutions allowed to launch funds that focus on the new board.

Six of the first seven funds were at least 10x oversubscribed, while the fund launched by China Asset Management received 25x more orders than it was able to fulfill.

The seven funds approved so far can all subscribe to the retail portion of new shares offered on the technology board, while one fund will also have access to the institutional tranche.

Another 70 funds are awaiting approval from the CSRC.

Beijing is expected to launch the board in the middle of this year.

The new board, touted by regulators as another milestone in the country’s capital markets, allows unprofitable technology firms and pre-revenue biotechnology companies to list on the Shanghai Stock Exchange.

The applicants thus far are mainly engaged in microchip making, computers, robotics, new materials and life sciences.

Companies listing on the new board can trade freely for the first five days and will be subject to a 20% limit before trade is halted from the sixth day of trade.

Companies that debut on the regular Shanghai board are allowed to trade without limit on the first day, and thereafter are allowed to rise or fall by 10% before trade is halted.