The STAR Market experienced a severe downturn in July, directly impacting the paper gains from broker underwriting commitments and sharply reducing the substantial profits seen earlier this year.
As of the end of July, the paper profit from underwriters' follow-on investments in Lianxun Instrument had shrunk by over 800 million yuan from its 2023 intra-year high. Other newly listed stocks like Zhenbao Technology and Shenghe Jingwei also saw maximum paper profit declines exceeding 500 million yuan for their underwriters. Additionally, the STAR Market saw its first IPO break below its issue price in July for a stock listed in the past two years. While the overall safety margin for follow-on investments remains relatively thick, the high volatility of this business line has once again come to the fore.
By the close on July 31, the STAR 50, STAR 100, and STAR Composite indices had all fallen over 25% for the month. Many individual stocks suffered even steeper declines. According to Choice data, 216 STAR Market stocks, or 35.3% of the total, dropped over 30% in July, disrupting the paper profits from broker follow-on investments.
Earlier this year, a strong rally in tech-focused new listings generated substantial paper profits for some major underwriters. By the end of June, Lianxun Instrument was the top gainer, providing its underwriter CITIC Securities with a paper profit of 1.725 billion yuan. Following the July sell-off, as of July 31, CITIC Securities' paper profit from Lianxun Instrument had fallen to 1.2 billion yuan, with the maximum drawdown from the stock's 2023 peak reaching 876 million yuan. Other newly listed stocks like Zhenbao Technology, Shenghe Jingwei, and Changjin Photon also saw underwriter paper profits shrink by over 500 million yuan from their intra-year highs. Several other 2023 IPOs, including Youyan Composite, Taijin New Energy, Dianke Blue Sky, and Hengyunchang, experienced paper profit declines exceeding 100 million yuan.
Notably, the July correction caused a 2023 STAR Market IPO to break its issue price. Shares of Yisiwei closed at 50.09 yuan on Friday. The stock, which listed in February at an IPO price of 55.71 yuan (ex-dividend), hit a low of 44.03 yuan on July 21. This marks the first instance of a STAR Market IPO breaking its issue price in nearly two years. Other stocks listed between H2 2024 and 2025 are also hovering near the breakeven point. For example, Angruiwei-UW, which debuted in December 2025, is trading less than 10% above its issue price.
Overall, the safety margin for underwriters' follow-on investments remains significant for many 2023 STAR Market IPOs, with stocks like Changxin Technology, Zhenbao Technology, Lianxun Instrument, and Shenghe Jingwei still showing paper profit ratios exceeding 500%. However, the recent sharp correction highlights the high volatility inherent in this business.
The impact of fluctuating STAR Market follow-on profits on broker earnings has become increasingly pronounced. In the early days of the STAR Market, this business was a key profit driver for leading investment banks. During the strong market and IPO performance of 2020 and 2021, the subsidiaries handling these investments reported impressive results. Conversely, during the significant market correction in the first half of 2024, before the "September 24" rally, most major brokers' investment subsidiaries underperformed, with six out of ten top-tier firms reporting losses, which weighed on their overall financials.
Recently, many leading brokers have issued positive profit alerts for their half-year reports. Analysts attribute this strong performance partly to substantial excess returns from follow-on investments, driven by the rally in the STAR Market and ChiNext. Regarding the impact of the current STAR Market correction, one investment banker commented, "It's simply a sharp drop in secondary market stocks, which will certainly affect broker profits." Large paper profit reversals can pressure fair value gains in quarterly reports. A proprietary trading department head added, "While I don't know the specifics for each firm, I personally believe the tech rally isn't over. Although paper profits are pulling back, it should be within a manageable range."