Chinese Stocks Fall on Restart of IPOs as Guotai Junan Slumps

Updated on
  • Investors are concerned about possible IPO oversupply, Wu says
  • Guotai Junan International drops after failing to contact CEO

Chinese stocks fell as Guotai Junan International Holdings Ltd. plunged in Hong Kong after the brokerage said it can’t contact its chairman, while technology companies slumped in Shanghai as the securities regulator gave the green light to initial public offerings following a five-month freeze.

Hong Kong’s Hang Seng China Enterprises Index dropped 0.7 percent to 10,229.43 at the close. Guotai Junan, one of China’s biggest securities firms, slid 12 percent after it said it failed to reach Yim Fung since last week. The Shanghai Composite Index fell 0.6 percent as software companies slumped amid speculation investors are selling the priciest stocks to raise funds for new share offerings.

The China Securities Regulatory Commission has restarted IPOs for five companies to list on the Shanghai stock exchange and five in Shenzhen. The 28 companies in total that will be allowed to proceed with their IPOs by the end of 2015 after being halted mid-year following a $5 trillion rout will probably tie up 3.4 trillion yuan ($533 billion), according to the median of six analyst estimates compiled by Bloomberg. Nearly every time a new batch of companies took orders over the past year, money-market rates climbed and the Shanghai Composite slumped as investors hoarded cash for their bids.

“People previously feared the IPOs would add to a supply glut,” said Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai. “The broader market will consolidate from here,” said Wu, who is keeping his stock holdings unchanged.

Guotai Junan

The CSI 300 Index retreated 0.6 percent on Monday, while the Hang Seng Index slipped 0.4 percent. The Shanghai gauge has rebounded 23 percent from the August low on speculation the government’s unprecedented measures to stabilize equities are working.

Guotai Junan International, whose June IPO was the biggest domestic share sale since 2010, appointed temporary replacements after failing to reach Yim Fung since Nov. 18. The executive “currently cannot discharge his duties,” the company said. Two calls to Yim’s mobile phone went to his voicemail box.

Guotai Junan Securities Co, which owns Guotai Junan International, slid 2.6 percent in Shanghai, while Citic Securities Co. fell 2.1 percent. Officials at the securities regulator, senior staff at Citic Securities and a top hedge fund manager have been caught up in investigations following a $5 trillion market rout earlier this year.

IPOs Resume

“It’s hard to avoid that people may associate the incident with the recent crackdown on the financial industry by mainland authorities,” said Ronald Wan, chief executive at Partners Capital International in Hong Kong. “Investors will be concerned about the company’s operations. It will also affect sentiment over the brokerage industry as a whole as the industry is now under greater scrutiny.”

A gauge of technology stocks retreated 1.6 percent on the CSI 300, trimming its gain to 51 percent this year. The measure trades at 35 times estimated 12-month earnings, compared with 13.2 for the CSI 300. Beijing Ultrapower Software Co. slid 4.7 percent, while Yonyou Network Technology Co. declined 3.4 percent.

Margin traders increased holdings of shares purchased with borrowed money on Friday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 727.5 billion yuan for the highest level since Aug. 25.

— With assistance by Shidong Zhang

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