China’s stocks fell the most in a week amid concerns new share sales will divert funds from existing equities and auto demand may slump after the government said it would stop providing cars to junior officials.
SAIC Motor Corp. and FAW Car Co. sank at least 2.4 percent, leading declines for automakers. Neusoft Corp. dropped 4.1 percent, sending a gauge of technology shares to its lowest level in almost two months. Bank of Communications Co. paced losses for lenders, sliding 0.8 percent. China faces what would be the second default in the nation’s onshore bond market after a builder said it may fail to make a payment next week.
The Shanghai Composite Index fell 0.6 percent to 2,055.59 at the close. Shanghai Beite Technology Co., an auto-parts maker that will start trading in Shanghai tomorrow, and 11 more companies that will begin marketing their shares next week may freeze subscription funds of as much as 766.5 billion yuan ($124 billion), according to the Securities Daily. China’s order limiting government vehicles to senior officials is the latest measure in President Xi Jinping’s austerity drive that risks slowing the economy.
“IPO sales have negatively impacted liquidity as some investors dumped shares in the secondary market to prepare for subscription to new shares in anticipation of big first-day gains,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai.
The CSI 300 Index declined 0.6 percent to 2,157.07. The Hang Seng China Enterprises Index slipped 0.4 percent. The Bloomberg China-US Equity Index added 0.4 percent yesterday.
The Shanghai Composite has fallen 2.9 percent this year, sending valuations to 7.6 times 12-month projected earnings, compared with the five-year average multiple of 11.4, according to data compiled by Bloomberg. Trading volumes in the index were 13 percent above the 30-day average today.
SAIC, China’s largest carmaker, fell 2.4 percent. FAW, which makes passenger cars with Volkswagen AG, retreated 2.8 percent. Chongqing Changan Automobile Co., a partner of Ford Motor Co. and Mazda Motor Corp., slid 2.3 percent.
Communist Party cadres and government officials ranked below vice minister will be given monthly allowances of 500 yuan ($80) to 1,300 yuan in lieu of government vehicles, the official Xinhua News Agency reported, citing the Party and State Council. The reforms will be completed in two to three years, it said.
A measure of technology stocks in the CSI 300 fell 0.9 percent. Software developer Neusoft tumbled 4.1 percent while Zhejiang Dahua Technology Co. slumped 3.3 percent.
Official data yesterday showed economic growth accelerated for the first time in three quarters after Premier Li Keqiang’s government sped up railway spending and reduced reserve requirements for some lenders to protect an annual growth goal of about 7.5 percent that’s under threat from a slumping property market.
David Cui, a Bank of America Corp. strategist ranked No. 1 by Institutional Investor magazine, said the state spending and monetary stimulus that drove a 14 percent rally in the Hang Seng China index from this year’s low in March are only making equities less appealing as leverage rises and free cash flow dwindles. He predicts the gauge will drop to 9,600 by year-end, or 8.4 percent below yesterday’s close.
“Given that growth is still being driven by the usual factors, it means the core issue is getting worse as people are building up debt,” Cui said in a phone interview on July 14. “The issue is whether this growth is good quality and sustainable. My belief is that it’s not.”
Bank of Communications dropped for the first time in four days. China Coal Energy Co., the nation’s second-largest coal producer, fell 1 percent.
Huatong Road & Bridge Group Co., based in the northern province of Shanxi, said it may miss a 400 million yuan note payment due July 23, according to a statement to the Shanghai Clearing House yesterday. Chairman Wang Guorui is assisting authorities with an official investigation, it said, without elaborating.
“It’s very likely the company will default,” said Xu Hanfei, a bond analyst at Guotai Junan Securities Co., the nation’s third-biggest brokerage. “If it does, the event will have a big impact on investors’ risk sentiment.”
Shanghai Chaori Solar Energy Science & Technology Co. marked China’s first onshore corporate bond default in March when it missed a coupon payment.
— With assistance by Shidong Zhang