China’s stocks fell, with the benchmark index dropping from its highest level in seven years, amid concern a flood of share sales may lure funds away from existing equities. Technology companies led declines.
Leshi Internet Information & Technology (Beijing) Co., the biggest mainland-listed Internet video provider, slumped 7.5 percent in Shenzhen. The ChiNext index of smaller companies tumbled 5.2 percent as 25 upcoming initial public offerings may lock up the largest amount of funds since new share sales resumed in January 2014. The China Securities Regulatory Commission announced that brokerages should limit margin trading and short selling at no more than four times their net capital.
The Shanghai Composite Index dropped 2 percent to 5,062.99 at the close, the most since May 28, while Hong Kong’s Hang Seng China Enterprises Index decreased 2.6 percent. Subscriptions for 25 IPOs including Guotai Junan Securities Co. may tie up 6.68 trillion yuan ($1.08 trillion) of liquidity starting Wednesday, according to a Bloomberg survey.
“This round of IPO sales has some big-cap companies so it’ll freeze more money than before,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “The market is at a high level now so sentiment could be fragile and volatile.”
The CSI 300 Index lost 2.1 percent. The Hang Seng Index retreated 1.5 percent. Trading volumes in the Shanghai Composite were 11 percent higher than the 30-day average.
The Shanghai gauge has surged 145 percent in the past year on a record jump in margin debt and bets the government will lower borrowing costs. It’s valued at 19 times 12-month projected earnings, compared with the five-year average of 10.3, according to weekly data compiled by Bloomberg.
All 10 industry groups in the CSI 300 dropped, with sub-indexes of phone and technology companies slumping at least 4.3 percent for the biggest losses. Beijing Shiji Information Technology Co. fell by the 10 percent daily limit, while ZTE Corp., China’s second-biggest phone-equipment maker, decreased 5.7 percent.
China’s benchmark money-market rate climbed for a fifth day as IPOs fueled demand for funds. The seven-day repurchase rate, a gauge of interbank funding availability, rose two basis points to 2.10 percent, the highest level since June 4, a weighted average from National Interbank Funding Center shows.
Stocks also dropped Monday after stimulus that had been speculated to come as soon as this weekend didn’t materialize. Pressure has grown on the central bank to add to two cuts in lenders’ reserve-requirement ratios this year after data last week showed exports and producer prices slumping.
Financial shares paced losses in Hong Kong. China Vanke Co, slumped 3.4 percent, while China Merchants Bank Co. retreated 4 percent. Haitong Securities Co. declined 3.8 percent.
Brokerages must not lend to individual clients with average daily assets of less than 500,000 yuan over the 20 past trading days, according to revised draft rules posted on the CSRC’s website on Friday, seeking public opinion.
The regulator’s draft plan would set a 234 billion yuan for Guangzhou-based GF Securities Co. based on its 58.5 billion yuan of net capital as of April 10. That’s 127 percent more than its 103 billion yuan of lending, the most of any Chinese brokerage, as of March 31.
A pullback by margin traders would undercut one of the biggest drivers of the rally that’s lifted the value of shares to more than $10 trillion for the first time. With so much borrowed money at stake, market downturns run the risk of snowballing as traders are forced to sell shares to meet margin calls, said Anthony Neoh, a visiting professor at the National University of Singapore and member of the Chinese securities regulator’s international advisory body.
Hong Kong Exchanges and Clearing Ltd. lost 3 percent amid disappointment authorities didn’t make an announcement on the city’s stock link with Shenzhen as had been speculated.
— With assistance by Shidong Zhang