2018.10.23 Qu Jiangyan Views:
A few days ago, the China Securities Regulatory Commission (CSRC) encouraged private equity funds to buy shares of listed companies and get involved in their M&As by participating in non-public offerings, transfer agreements, and block trades. CoStone Capital says some companies on the secondary market already have good investment value, and it on the lookout for the opportunities of their mergers and acquisitions.
A few days ago, the China Securities Regulatory Commission (CSRC) encouraged private equity funds to buy shares of listed companies and get involved in their M&As by participating in non-public offerings, transfer agreements, and block trades. CoStone Capital says some companies on the secondary market already have good investment value, and it on the lookout for the opportunities of their mergers and acquisitions.
According to a head of CoStone Capital, the companies they currently have access to are valued at a multiple of 15-20 times. The figure is even higher for emerging companies. Compared with companies on the secondary market, there’s uncertainty about the potential growth and chance of going public for them. Many companies on the secondary market are leaders of subsectors, and they are valued at 10-time multiples. Since they’ve already been listed, they have better exit channels and liquidity.
As of October 19, the average PE (price-to-earnings) ratio of Shenzhen ChiNext Board was 31.21; that of Small and Medium Enterprise Board was 22.7; that of Shenzhen Stock Exchange Main Board was 13.95 times; and that of Shanghai Stock Exchange was 12.4 times.
From the perspective of CoStone Capital, even if the market value of some companies has fallen by 70 to 80%, their market value is still worth of ¥2-3Bn. If these companies lack growth potential in the future, they are still overvalued.
“Due to the opening of China’s capital market and occurrence of Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and future Shanghai-London Stock Connect, the A-share market is no longer a closed market. Coupled with the accelerated issuance of IPOs, the value of shell resources will be greatly reduced in the future, and A-share market will inevitably align with the Hong Kong stock market,” said that head of CoStone Capital.
Above is from Zhang Wei’s interview with Shanghai Securities. Access to original report in Chinese: http://news.cnstock.com/news,jg-201810-4286395.htm
Rewritten by Lu Ying; Edited by Li Yunzhen,Du Zhixin
Over the past year, the bull market returned, with technology leading the way.
As I said back in October 2024, the rally that began on September 24 was not merely a rebound, but a reversal. Since then, China's capital markets have undergone a broad revaluation, moving from undervaluation toward fair value.
The Shanghai Composite Index reached its highest level in a decade. The "Yi-Zhong-Tian" trio—Eoptolink, Zhongji Innolight and TFC Communication, three prominent Chinese optical communications stocks—saw their share prices multiply severalfold in a single year. Cambricon's market capitalization briefly exceeded RMB 600 billion. Elsewhere in the technology sector, triple-digit price-to-earnings ratios and valuations exceeding RMB 10 billion became commonplace.
Some investors were greedy; others, fearful. Still others asked me: Are technology stocks in a valuation bubble?
My answer is that what we are witnessing is the hunger and anxiety of an era, reflected in the capital markets. Once you understand this, the current fervor for technology investing is no longer difficult to explain.
Investment has nothing to do with macroeconomics, but everything to do with geopolitics.
China-US relations will shape the investment landscape for decades to come. Geopolitics has played a major role in shaping the hunger and anxiety of our times, fundamentally reshaping the way we invest.
What, then, lies at the heart of China's hunger and anxiety?
The Fourth Industrial Revolution is already underway, yet China has not fully overcome the technological shortcomings left by the Third. There is no time to lose.
This is why some people wonder: Why do Chinese computing chip companies command such high valuations when their technologies still lag so far behind NVIDIA's? Why does NVIDIA trade at just 50 times earnings, while a company hailed as "China's answer to NVIDIA" commands a multiple of 300?
To me, this gets the logic exactly backward.
It is precisely because these companies cannot catch up with NVIDIA in the near term that they command a higher strategic premium. The wider the technological gap, the greater the strategic value.
The further something lies beyond our reach, the stronger our hunger. The harder it is to catch up, the deeper our anxiety. If China were to achieve a complete breakthrough in computing chips one day, valuations might actually come down.
Where can one find China's most spectacular natural landscapes?
Much of the answer, I believe, lies in and around the Hengduan Mountains: the Meili Snow Mountains, Jade Dragon Snow Mountain, Mount Gongga, Mount Siguniang, Jiuzhaigou, and many others. Vast differences in elevation and deep fault lines have given rise to landscapes of extraordinary grandeur.
Hard-tech investing follows a similar logic.
Technological gaps, discontinuities in capabilities, and missing links in industrial systems: a leap in difficulty brings a leap in valuation, and a successful breakthrough can, in turn, bring a leap in returns.
This logic extends well beyond computing chips. It is equally evident in memory semiconductors, commercial spaceflight, and other sectors where China still faces substantial technological gaps with other countries.
It was precisely this conviction that led CoStone Capital, starting in 2016, to decisively focus its investments on three areas: hard tech, emerging industries, and life sciences and healthcare. In this context, "hard tech" refers specifically to important industries in which China faces a technological gap with the United States.
Thanks to this forward-looking strategy, CoStone Capital established an early presence across the full value chains of key sectors, including semiconductors, artificial intelligence, and robotics.
Looking ahead, the frontiers of technological progress and industrial upgrading are boundless. Nor can the gaps in hard technology be closed overnight. The twin windows of opportunity presented by technological innovation and the development of homegrown alternatives to foreign technologies have only just begun to open.
The road ahead is long, but the future holds immense promise.
As an investment firm, CoStone Capital will continue to invest where the hunger and anxiety of each era run deepest, move forward with the tensions that shape our times, and extend our reach toward the most challenging—and most important—frontiers.
Spring 2026