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Today, let's talk about a somewhat disheartening topic, concerning the Science and Technology Innovation Board (STAR Market).

In mid-2019, the Science and Technology Innovation Board officially entered the market.

To date, it has been nearly five years.

At the end of 2019, the Science and Technology Innovation Board 50 Index was officially launched, starting at 1,000 points.

To this day, the index of the Science and Technology Innovation Board 50 is less than 750 points.

That is, in just over four years, the weighted average stock price of the 50 core listed companies representing the Science and Technology Innovation Board has fallen by 25%.

With high technological content and sufficient innovation, the Science and Technology Innovation Board should theoretically have developed rapidly in the past five years, but it has brought such a huge loss.

Especially in the last two or three years, the entire Science and Technology Innovation Board has hardly seen any improvement.

After a short-term rise, it began a long road of decline.

Although, there are not many retail investors participating in the Science and Technology Innovation Board, because there is a capital threshold.However, the downturn of the Science and Technology Innovation Board is so confusing that people can't figure it out. What's wrong with the Science and Technology Innovation Board, and can it get better?

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In fact, there are many reasons for the Science and Technology Innovation Board to face the current situation.

But in the final analysis, the following four points are the most important reasons.

1. Premium issuance.

To be honest, the situation of premium issuance on the Science and Technology Innovation Board is very serious.

This is not an exaggeration.

It can also be understood that in order to allow these companies with a preference for scientific research to raise more funds, premium issuance is also normal.

Especially for some Science and Technology Innovation companies that are already losing money, the pricing is relatively vague, and the premium rate is very high.

There is no problem with premium issuance, but after 3-5 years of listing, they still can't achieve performance.

Then such companies will definitely drag down the entire Science and Technology Innovation Board, and there are no lack of stocks that have been halved or even fallen by more than 80%.This also seems to be a reminder to the market that the premium issuance of sci-tech innovation companies may not be necessary, and whether it is a pitfall.

2. Liquidity issues.

Liquidity is indeed a poison.

The proportion of retail investors speculating in the Science and Technology Innovation Board is very low, due to the high capital threshold.

This leads to many Science and Technology Innovation Board stocks being neglected by funds.

Because there are no retail investors, many funds that are targeting retail investors naturally dare not buy, for fear of no one taking over the plate.

Apart from some listed companies included in the Science and Technology Innovation Index, and some relatively well-known, larger market value sci-tech innovation companies.

Most companies on the Science and Technology Innovation Board have relatively low overall transactions.

This is a typical lack of capital liquidity, and the shortage of liquidity naturally leads to a discount on the stock.

This is why there have been many market rumors that the threshold for the Science and Technology Innovation Board may be lowered.The risks associated with the Science and Technology Innovation Board (STIB) are indeed relatively high, so the proposal to lower the threshold and allow a large number of retail investors to enter the market is likely to be difficult to implement.

In other words, the STIB is expected to face a long-term shortage of capital supply.

Of course, some parts of the STIB index, such as the STIB 50, STIB 100, STIB Chip, and so on, will be slightly better off.

Exchange Traded Funds (ETFs) have become the main tool for ordinary retail investors to invest in the STIB indirectly.

3. Earnings growth falls short of expectations.

The performance issue of the STIB is actually a significant problem.

A large part of the reason why the STIB has reached its current situation is due to the underperformance of the listed companies on the STIB compared to expectations.

The market's expectations for the STIB are actually quite high.

The reason for the high overall valuation given to the STIB is that, in people's impressions, technology innovation companies have a better competitive field, and their growth should be better than that of the companies listed on the Growth Enterprise Market (GEM).

However, the actual situation is quite different, with a significant discrepancy.The performance growth of the Science and Technology Innovation Board (STAR Market) has shown a single-digit trend, which is far beyond the market's expectations.

Although it is relatively easy to understand, because companies on the STAR Market have not had an easy time in the past two years.

On one hand, they have to engage in fierce competition in sales, and on the other hand, they need to increase investment in research and development, which has led to a decline in profitability.

If this is a short-term behavior, the valuation system of the STAR Market will recover quickly.

However, if the performance consistently falls short of expectations in the long term, the calculation and positioning methods of the overall valuation of the STAR Market may need to be rethought.

4. The issue of major shareholders' reduction.

Even the new regulations on reduction cannot prevent the reduction behavior of the STAR Market.

The reason is very simple, a large part of the reduction in the STAR Market comes from venture capital shareholders, that is, pure financial investors.

The reduction of these major shareholders is not controlled by the new regulations.

To put it bluntly, it is also impossible to restrict these shareholders from reducing, otherwise, the primary and secondary markets are prone to chaos.These venture capitalists, after a hard time finally investing in a listed company, need to exit within the shortest possible time, which is convenient for financial liquidity and also replenishes their liquidity.

Even the country's major funds follow exactly the same approach.

When the invested company goes public, they will also cash out at an appropriate price and leave.

This originally could not be considered a big problem.

However, for the science and innovation board that lacks liquidity, it has become a key problem that adds insult to injury.

Few retail investors, a lot of cashing out, poor performance, and premium issuance have become the four main reasons for the continuous decline of the science and innovation board.

From an important section that everyone looks forward to in the future of technological innovation, it has become a street rat that everyone shouts and scolds.

The science and innovation board only took about three years.

Even if we still believe that the science and innovation board has very important strategic significance and value, it cannot stop the established fact of the sharp decline of the science and innovation board, and the participating investors are basically losing money.In fact, the current situation of the Science and Technology Innovation Board (STAR Market) is something the ChiNext board has also encountered in the past.

The ChiNext index was launched at 1000 points, and at its lowest, it even fell below 600 points, with a drop exceeding 40%.

How did the ChiNext board ultimately resolve these issues?

In reality, there is no particularly good solution to the problem, but as time passed, the market changed.

1. Supplementing liquidity.

In the past two years, the market's intention to inject liquidity into the Science and Technology Innovation Board through index ETFs is quite obvious.

Although the effect is not very good, because the outflow is still greater than the inflow, at least there are real funds entering the market with actual money.

With the continuous injection of liquidity, the overall capital situation of the Science and Technology Innovation Board will improve.

2. The emergence of heavyweight stocks.

The rise of any sector and index is actually always focused on the heavyweight stocks.The heavyweight stocks on the Science and Technology Innovation Board, apart from the old batch such as SMIC, there have been no new heavyweights emerging in the past two years.

However, this situation will not last long, as there will always be new companies stepping forward to challenge the old guard.

Therefore, there is no need to worry about the overall market being pessimistic, as opportunities are substantial in the long run.

Everything has cycles, and cycles have their own cycles of renewal.

Thus, the recent years of decline on the Science and Technology Innovation Board may be to set the stage for the prosperity of the next few years.

When small and medium-sized enterprises catch their breath, spring will naturally arrive.

For investors, understanding the alternation of bear and bull markets is the most important required course.