China's Stocks Drop Most in Two Weeks as IPO Demand Saps Funds

China's Challenges: Key Themes to Watch in 2016
  • Trading volumes decline as regional markets shut for holidays
  • Property developer Gemdale falls from record, Poly slides

China’s stocks fell the most in two weeks as health-care and property companies slumped amid speculation recent gains were overdone, and concern grew initial public offerings will divert funds away from existing equities.

The Shanghai Composite Index dropped 0.7 percent to 3,612.49 at the close, capping the steepest loss since Dec. 8. Drugmaker Beijing Tongrentang Co. and developer Gemdale Corp. plunged at least 6.9 percent. The overnight repurchase rate jumped to the highest level in three months. Trading volumes in Shanghai were 16 percent below the 30-day average, with most regional markets shut for the Christmas holidays.

The eight companies that began their share subscription this week will freeze as much as 1.5 trillion yuan ($230 billion), according to China International Capital Corp. Nearly every time a new batch of companies took orders in the past year, money-market rates climbed and the Shanghai Composite slumped as investors hoarded cash for their bids. Thanks in large part to a regulatory ceiling on valuations, the average IPO surged from its offering price. The overnight repurchase rate rose two basis points to 1.91 percent in Shanghai on Thursday, the highest since Sept. 30.

“Trading volume in China has been declining since the start of December, which could mean that the Shanghai Composite may not be making much headway in either direction for the rest of the year,” said Bernard Aw, a strategist at IG Asia Pte. in Singapore. “The index is still firmly on a upward trajectory since September, although anyone hoping it will end the year above 4,000 will be sorely disappointed.”

Hong Kong’s Hang Seng Enterprises Index rose 0.7 percent at the close, capping a 3.3 percent gain this week. The Hang Seng Index advanced for a fourth day, rising 0.4 percent. The city’s bourse closed at noon on Thursday and will reopen on Monday.

The Shanghai gauge has rebounded 23 percent from the August low and is heading for the biggest gain among major benchmark global indexes this quarter. While valuations are still below levels reached earlier in the year, they aren’t cheap. The median stock on mainland exchanges trades at 74 times earnings, the highest among the world’s 10 biggest markets.

The CSI 300 fell 1 percent. A gauge of health-care companies slid 1.8 percent, the most among 10 industry groups. Beijing Tongrentang’s 6.9 percent decline pared a month-long rally to 45 percent. Yunnan Baiyao Group Co. retreated 1.6 percent. Drugmakers have been the best-performing industry group this year after technology companies, rising 37 percent.

The Shanghai property gauge slumped 2.4 percent, trimming gains to 3.6 percent over the past month. Gemdale tumbled 9 percent after hitting a record high, while Poly Real Estate Co. slid 4.7 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE