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China’s Stocks Cap Weekly Loss as IPO Rally Seen Diverting Funds

Jan. 17 (Bloomberg) -- China’s stocks fell, capping a third week of losses, as a 43 percent surge in Neway Valve (Suzhou) Co. in its Shanghai debut heightened concern that initial public offerings will divert funds from existing shares.

Neway Valve, the first IPO to trade following a more than yearlong freeze, had the highest turnover among shares on the Shanghai Stock Exchange. Dairy maker Inner Mongolia Yili Industrial Group Co. and Baoshan Iron & Steel Co. dragged gauges of consumer-staples and material stocks to the biggest declines among industry groups, before Jan. 20 reports on economic growth and factory output. Industrial & Commercial Bank of China Ltd. slipped to the lowest level since 2008.

The Shanghai Composite Index fell 0.9 percent to 2,004.95 at the close, completing a 0.4 percent decline this week. Neway, an industrial valve maker, is among the 52 companies approved by the securities regulator to sell shares after the end of the IPO freeze. Companies may raise 250 billion yuan ($41 billion) this year, PricewaterhouseCoopers LLP said this month.

“Neway has set an example that the return from IPOs is pretty high and investors will withdraw money from the secondary market to participate,” said Dai Ming, a money manager at Hengsheng Hongding Asset Management Co. “Next week’s economic data will probably convince investors to believe that the market has no upside.”

The CSI 300 Index lost 1.5 percent to 2,178.49. The Hang Seng China Enterprises Index fell 0.2 percent. The Bloomberg China-US Equity Index fell 1.2 percent in New York yesterday.

Neway Debut

The Shanghai index trades at 7.5 times 12-month projected earnings, the lowest level since Bloomberg began compiling weekly data in 2005. Trading volumes were 17 percent lower than the 30-day average today.

Neway Valve closed at 25.34 yuan, up 43 percent from the IPO price, and had the highest turnover among companies on the Shanghai Stock Exchange. Neway Valve’s 1.5 billion yuan ($241 million) share sale valued the company at 46.5 times 2012 earnings, compared with 33.9 times for listed industry peers.

The stock was suspended within the first 10 seconds of trading after trading 10 percent above its opening price of 21.19 yuan, a limit introduced by the bourse in December to curb speculative first-day trading. The Shanghai exchange will watch closely for speculation in trading of newly listed stocks such as Neway Valve, according to a statement today.

“The market has a history of speculating on new stocks,” said Mao Sheng, an analyst at Huaxi Securities Co. in Chengdu. “After such a long freeze on IPOs and a price that isn’t high, this is totally within expectations.

Growth Concerns

Indexes of consumer-staples and material stocks in the CSI 300 fell at least 2.1 percent, the most among industry groups.

Yili, China’s biggest dairy producer by sales, slid 3.4 percent to 37.58 yuan. Liquor maker Anhui Gujing Distillery Co. tumbled 5.2 percent to 22.62 yuan.

Baoshan Steel, the listed unit of China’s second-biggest steelmaker, fell 3.4 percent to 3.74 yuan. BBMG Corp., a Beijing-based cement maker, slumped 3.7 percent to 5.43 yuan.

China’s economic growth probably decelerated to 7.6 percent in the fourth quarter from 7.8 percent in the previous quarter, according to a Bloomberg survey of 44 economists. Industrial-production gains probably slowed to a five-month low of 9.8 percent, the survey showed. The economic expansion will moderate to 7.4 percent this year as investment slows and overcapacity is squeezed, according to a survey last month.

ICBC, the nation’s biggest listed lender, slipped 0.6 percent to 3.41 yuan. The stock was the biggest drag on the Shanghai Composite after Agricultural Bank of China Ltd.

Rates Jump

China’s benchmark money-market rate jumped this week on speculation banks are hoarding funds to meet increased customer withdrawals before holidays at the end of this month.

The seven-day repurchase rate surged 112 basis points from a week ago to 5.14 percent as of 3:25 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the first five-day increase since the period ended Dec. 22.

‘‘Liquidity is tightening because of demand for funds ahead of the Chinese New Year,” said Hanfei Xu, a Shanghai-based bond analyst at Guotai Junan Securities. “The seven-day repo rate may rise above 5 percent in the next week or so.”

Yu’E Bao, an investment product offered through Alibaba Group Holding Ltd.’s third-party payment affiliate Alipay.com Co., is a threat to Chinese banks at a time they are already facing pressure from interest-rate liberalization, Gao Xu, chief economist at Everbright Securities, said in a Bloomberg interview from Shanghai.

ChiNext Valuation

The ChiNext Index gained less than 0.1 percent to 1,395.51. The gauge has surged 80 percent in the past 12 months, lifting the median market value of its components to a record $1.1 billion on Jan. 15.

That’s the highest ever relative to the benchmark Shanghai Composite, which has a median value of $784 million, and the biggest among small-cap measures in the world’s 10 largest equity markets. Gauges for small companies in Brazil, Russia and India have dropped at least 10 percent during the same period.

“We are seeing a big change in market capitalization,” said Cao Jin, a fund manager at HSBC Jintrust Fund Management Co. in Shanghai. “This is inevitable given the change in the nation’s economic structure.”

China Cosco Holdings Co., the nation’s biggest shipping company, gained 1.3 percent to 3.12 yuan after saying it probably returned to profit last year.

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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