China Shares Fall Most in Asia on Concern IPOs to Drain Funds

Chinese stocks fell, paring a weekly gain, on concern new share sales will lure funds from existing equities and sluggish economic growth will hurt earnings.

Energy and utility stocks led losses as nine out of 10 industry groups on the CSI 300 Index slid. China Petroleum & Chemical Corp. dropped 3.9 percent. GD Power Development Co. lost 2.5 percent. Hong Kong Exchanges & Clearing Ltd. soared 4 percent as the city’s stocks rallied on speculation authorities will announce a date for an exchange link with Shenzhen.

The Shanghai Composite Index fell 1.6 percent to 4,308.69 at the close, trimming this week’s gain to 2.4 percent. The CSI 300 Index slumped 1.8 percent. Data from factory output to retail sales and new lending all trailed estimates this week after the central bank raised interest rates for the third time since November to shore up the economy. New equity offerings will probably lock up 2.79 trillion yuan ($450 billion) starting next week, based on a Bloomberg survey of analysts.

“The recently released economic data was poor,” said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Shanghai, the second-largest listed Chinese brokerage. “Investors are now back to stock picking and there are no clear short-term catalysts. There is also a new round of IPOs and investors are likely to be selling some of their holdings.”

The liquidity lockup from subscriptions for 20 initial public offerings will start on May 19 and peak on May 20, China International Capital Corp. analysts including Hanfeng Wang wrote in a report on Wednesday.

Exchange Link

In Hong Kong, the Hang Seng China Enterprises Index jumped 1.3 percent at 3:21 p.m., while the Hang Seng Index climbed 1.6 percent. China Telecom Corp. and CK Hutchison Holdings Ltd. both increased 3.8 percent.

“There is some market talk that the Hong Kong Stock Exchange will announce details on the Shenzhen connect this weekend, with the starting date being in September,” said Yen Chiu, a Hong Kong-based trader at Shenwan Hongyuan. “The rally seems to be speculation-driven for now.”

The bourse has no arrangements to announce the Shenzhen connect Friday, said Lorraine Chan, spokeswoman at HKEx. A call made to the media department of the Shenzhen Stock Exchange went unanswered.

Gauges of energy, telecom and utilities in the CSI 300 tumbled at least 2.8 percent for the biggest losses among industry groups. GD Power extended its retreat from a record high and ZTE Corp. declined 4.8 percent.

Small Caps

The ChiNext Index, dominated by technology and consumer companies, rose 0.1 percent after falling as much as 2.6 percent. The China Securities Regulatory Commission will hold a weekly meeting after markets close Friday and may warn investors about the risk of high valuations on the ChiNext index, according to RBC Investment Management Asia.

Turnover on the Shenzhen Composite Index climbed to $112.1 billion yesterday, surpassing Shanghai’s for the second time this year amid optimism over its exchange link with Hong Kong.

The ChiNext is trading at 70 times projected 12-month earnings, compared with the five-year average of 37.5.

The ChiNext is forming an unprecedented bubble as mutual funds have heavy positions in the stocks and retail investors buy them regardless of fundamentals, according to a Thursday article in the Economic Information Daily written by Wu Lihua.

Fund Selloff

Margin traders increased holdings of shares purchased with borrowed money for a fourth day on Thursday, with the outstanding balance of margin debt in Shanghai climbing to an all-time high of 1.27 trillion yuan.

Shares also fell in Shanghai after China Fund News said Central Huijin Investment may have sold all its holdings in an exchange-traded fund tracking 180 Shanghai-listed stocks between April 17 and April 22, Cheng said. China Fund News cited a reporter’s analysis based on the fund’s exchange filings.

A gauge of technology shares in the CSI 300 rose 7.4 percent this week for the biggest gain among industry groups. Dr. Peng Telecom & Media Group Co. surged 25 percent in the past five days.

The Shanghai Composite has posted gains in nine out of the past 10 weeks. It has rallied 113 percent over the past year and is valued at 16.7 times forward earnings, compared with its five-year average multiple of 10.2, according to data compiled by Bloomberg.

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