China’s Stocks Fall on IPO Concern as Small-Company Shares Rally

China’s stocks fell on concern the resumption of initial public offerings will divert funds. Small-company equities rallied after the government started allowing insurers to invest in companies in the ChiNext Index.

Chinese energy and material shares led declines, with China Oilfield Services Ltd. (601808) sliding 1.5 percent on plans to raise HK$5.88 billion ($758 million) through a private placement and Shandong Gold Mining Co. losing 3.9 percent on slumping bullion prices. Leshi Internet Information & Technology Corp. (300104), which has the biggest weighting on the ChiNext, rose 10 percent.

The Shanghai Composite Index (SHCOMP) fell for the fourth time in five trading days this year, losing 0.2 percent to 2,044.34 at the close. The ChiNext, dominated by private companies in nascent industries such as technology and health care, surged 3.9 percent, the biggest gain since Aug. 1.

“We see lots of IPOs coming in the pipeline and there will be a spike in new stock supply, which will dry up liquidity,” said Wu Kan, a money manager at Dragon Life, which oversees about $3.3 billion. “It’s a boost to ChiNext stocks as institutional investors will buy and hold shares of small-cap companies with strong growth potential.”

The CSI 300 Index added 0.2 percent to 2,241.91 today. The Hang Seng China Enterprises Index (HSCEI) advanced 1.2 percent. The Bloomberg China-US Equity Index added 0.9 percent yesterday.

The Shanghai index has dropped 3.4 percent this year, extending 2013’s 6.75 percent decline, amid concern slowing economic growth will curb profits. Trading volumes were 24 percent lower than the 30-day average today, according to data compiled by Bloomberg.

Biggest Decliners

Sub-indexes of material and energy stocks in the CSI 300 fell at least 1.2 percent, the most among 10 industry groups.

China Oilfield, the drilling unit of the nation’s largest offshore oil producer, lost 1.5 percent to 21.02 yuan. The company will sell 276.3 million Hong Kong-listed shares at HK$21.30 each, a 7 percent discount to yesterday’s closing price, according to an exchange statement.

Shandong Gold sank 3.9 percent to 16.67 yuan. Bullion for immediate delivery lost as much as 0.5 percent to $1,225.71 an ounce in Singapore. Chenzhou Mining Group Co. (002155) fell 2.9 percent to 7.45 yuan. Baoshan Iron & Steel Co., the listed unit of the second-biggest steelmaker, retreated 1.5 percent to 3.83 yuan.

China’s new credit probably fell by a record in the second half amid a crackdown on speculative lending, limiting prospects for economic expansion this year as policy makers focus on controlling financial risks.

The broadest measure, aggregate financing, was 7.1 trillion yuan based on published figures plus economists’ median estimate for December data due in coming days. That would be about 931 billion yuan less than in July-to-December 2012, the largest drop in figures going back to 2002.

Shaanxi Coal

The government will release December data on inflation and trade from this week. Inflation probably eased to 2.7 percent from 3 percent a month earlier while export growth may have slowed to 5 percent from 12.7 percent, according to Bloomberg surveys of economists.

Ping An Bank Co. led gains for financial companies, climbing 1.1 percent to 11.76 yuan, after it raised 14.7 billion yuan from a share sale to its parent company. Sinolink Securities Co. surged 8 percent to 18.50 yuan.

China, the world’s largest IPO market in 2010, with a record $71 billion raised, hasn’t had an IPO since October 2012 as the securities regulator cracked down on fraud and misconduct among advisers and companies.

Government Support

The China Securities Regulatory Commission approved seven IPOs yesterday, bringing the total number of those approved to 38. Shaanxi Coal Industry Co. plans to raise 9.83 billion yuan ($1.6 billion) by selling one billion shares in Shanghai on Jan. 17, making it China’s biggest IPO in more than two years.

Chinese regulators are considering adjusting the pace of IPO approvals, the 21st Century Business Herald reported today, citing an unidentified person familiar with the matter.

Central Huijin Investment Ltd., a unit of the sovereign wealth fund, bought 2 billion yuan of “blue-chip” exchange-traded funds on Jan. 3 and Jan. 6, the Oriental Morning Post said, citing an unidentified person. Huijin is aiming to ensure stock market stability when IPOs restart, the report said.

Insurers can invest in ChiNext stocks effective immediately, subject to certain criteria, the China Insurance Regulatory Commission said in a statement yesterday.

Leshi Internet surged by the daily limit to 50.60 yuan. Zhejiang Huace Film & TV Co. also jumped 10 percent to 33.99 yuan while Zhengzhou Sino-Crystal Diamond Co. (300064) climbed 9.9 percent to 5.31 yuan.

Chinese mutual funds allocated more than 50 percent of their assets to small-cap stocks at the start of last year, compared with 17 percent for larger companies, according to estimates from Bank of Communications Co.

--Zhang Shidong. Editors: Allen Wan, Phani Varahabhotla

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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