China’s stocks fell for the first time in four days after the securities regulator increased the pace of initial public offerings, spurring concern new equity sales will divert funds from existing shares.
Financial companies led declines, with Citic Securities Co. and Industrial & Commercial Bank of China Ltd. dropping more than three percent. The securities regulator said online rumors that the government was considering boosting a stamp duty on stocks were untrue. The ten companies which made their trading debuts on Friday all jumped by the daily limit of 44 percent. Phone company ZTE Corp. rose 5.6 percent in Hong Kong after reporting a gain in first-quarter net income.
The Shanghai Composite Index slid 0.5 percent to 4,393.69 at the close on Friday, after climbing to the highest level since 2008 yesterday. An increase in new shares may hurt liquidity and comes as the China Securities Regulatory Commission warned investors to be cautious about market risks after a world-beating rally in the past year.
“There are 10 IPOs in China this morning,” Andrew Sullivan, head of sales trading at Haitong International Securities Group Ltd. in Hong Kong, said by phone. “People are generally cautious as the market is testing key levels and watching whether the numbers are justifying valuations. It’s more about sentiment than fundamentals.”
The Hang Seng China Enterprises Index added 0.1 percent, while the Hang Seng Index rose 0.8 percent, led by HSBC Holdings Plc. The CSI 300 Index declined 0.8 percent. The Bloomberg China-US Equity Index increased 0.8 percent on Thursday.
The CSRC will review and approve two batches of IPO applications each month, up from one previously, it said on its official microblog. Twenty-five IPOs were approved on Thursday, the regulator said.
IPOs have been surging after regulators put pressure on companies to keep offering prices low to protect individual investors. While policy makers have made no official announcements about a valuation ceiling, data compiled by Bloomberg show that virtually no companies in China are going public at prices of more than 23 times their earnings per share.
A gauge of financial stocks in the CSI 300 tumbled 2.9 percent for the biggest loss among 10 industry groups. Haitong Securities Co. slid 3.8 percent, while Ping An Insurance (Group) Co. declined 3.7 percent. Poly Real Estate Group Co. led declines for property developers in Shanghai, sliding 4.1 percent. Gemdale Corp. retreated 2.3 percent.
China banned local government financing vehicles from selling bonds through private placements, as authorities increase efforts to curb regional borrowings. Real estate developers who keep land idle, speculate on land prices, hoard property sales or rig home prices are also barred from selling private notes, according to a “negative list” in a statement dated April 23 and posted on the Securities Association of China’s website.
Rumors on the Wechat chat-application yesterday saying several government departments suggested raising the stamp tax, resuming the capital gains tax and controlling leverage risks in the stock market as there are bubbles are untrue, the CSRC said on the Weibo microblog.
Stock investors should think about market risks, the Shanghai Securities News cited Zhao Min, the vice head of the CSRC’s investor protection bureau, as saying. The balance of margin trading in Shanghai climbed to an all-time high of 1.19 trillion yuan ($191 billion) on Thursday.
In Hong Kong, HSBC surged 4.2 percent as the bank started a review of where its headquarters should be, signaling it could move away from the U.K. because of increased regulatory burdens. ZTE climbed to the highest level in more than three years after first-quarter net income rose to 882.9 million yuan from 622.2 million yuan a year earlier.
The Shanghai index gained 2.5 percent this week as weak economic data such as a preliminary manufacturing report fueled speculation that the central bank will further ease monetary policy after announcing a cut in reserve-requirement ratio last weekend. The gauge has rallied 88 percent in the past six months, the most among benchmark indexes globally. It trades at
17.5 times estimated earnings for the next 12 months, compared with an average of 11 for the past five years.
After the market close, China’s securities regulator said it has started a campaign to crack down on stock-market manipulation and insider trading. The CSRC will target the trading activities of brokerages’ employees using non-public information, market manipulation using information advantage, manipulation of futures prices, accounting fraud in mergers and acquisitions and insider trading in the over-the-counter markets, the CSRC said in a Friday statement on its website.