China Stocks Rise, Brokers Rally on IPOs; Smallcaps Fall
China’s stocks rose, paring this year’s loss, as the first government approvals for initial public offerings in more than a year sparked a rally in brokerages. Small-company shares fell.
Citic Securities Co. (600030) and Haitong Securities Co. climbed at least 1.6 percent on speculation new share sales will bolster earnings. Inner Mongolian Baotou Steel Union Co. jumped 10 percent after its board approved a plan to raise up to 29.8 billion yuan ($4.92 billion) to buy assets. Chengdu Gotecom Electronic Technology Co. (300101) and Gansu Dayu Water Saving Group Co. slid more than 4 percent to pace declines for smaller companies.
The Shanghai Composite Index (SHCOMP) gained 0.9 percent to 2,115.98 at the close, trimming losses in 2013 to 6.8 percent, a third year of declines out of four. Five companies including Neway Valve (Suzhou) Co. and Truking Technology Ltd. were approved by the China Securities Regulatory Commission to raise a combined $353 million from IPO sales. Four of the five companies will be listed on Shenzhen’s smaller-company boards.
“IPOs will bring investment-banking revenue to the brokerages and help to boost profit,” said Wei Wei, an analyst at West Securities Co. in Shanghai. “Small-caps bear the brunt of new share sales as most of the new listings come from smaller companies.”
The Shanghai index posted its third annual loss in four years, making it the worst-performing market in Asia. Trading volumes were 21 percent below the 30-day average today, according to data compiled by Bloomberg. The measure trades at 8.2 times projected profit for the next 12 months, compared with the seven-year average of 15.1 times, Bloomberg data showed.
The CSI 300 Index advanced 1.3 percent to 2,330.03, paring this year’s loss to 7.6 percent, while the Hang Seng China Enterprises Index (HSCEI) added 0.4 percent, trimming the 2013 decline to 5.4 percent. The ChiNext small-companies index, up 83 percent this year, slid 0.3 percent today. The Bloomberg China-US Equity Index fell 0.6 percent in New York yesterday.
China’s equities have fallen this year amid concern slowing economic growth will curb profits. Property and energy companies led declines among industry groups, while measures of technology and drug companies in the CSI 300 gained more than 20 percent.
The government unveiled the biggest reform package since the 1990s last month, pledging to allow more private investment in state-controlled industries, after earlier promising to give markets a greater role in shaping the economy.
A sub-index of financial companies including brokerages climbed 2 percent today for the biggest gain among the CSI 300’s 10 industry groups.
Citic Securities, China’s biggest listed brokerage, advanced 3.3 percent to 12.75 yuan. Haitong Securities, the second largest, gained 1.6 percent to 11.32 yuan. GF Securities Co. (000776) climbed 2.5 percent to 12.48 yuan.
Neway Valve received approval for a first-time sale in Shanghai that could seek about 839 million yuan ($138 million) and will start marketing its shares early next month. Truking Technology, Guangdong Qtone Education Co., Guangdong Xinbao Electrical Appliances Holdings Co. and Zhejiang Wolwo Bio-Pharmaceutical Co. secured approval to list on the smaller Shenzhen exchange.
China, the world’s largest IPO market in 2010, with a record $71 billion raised, hasn’t had an IPO since October 2012 as the securities regulator cracked down on fraud and misconduct among advisers and companies. About 50 companies are expected to complete the IPO approval preparations and list or be ready to do so by the end of January, the CSRC said.
Smaller companies dropped on concern new share supply will divert funds from existing equities. Chengdu Gotecom sank 7 percent to 19.78 yuan. Gansu Dayu Water Saving lost 4.2 percent to 11.52 yuan.
“Pricing of the new shares will be the key,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “If the stocks are still priced very high, IPO reforms will become meaningless and unsuccessful.”
Baotou Steel surged by the daily limit to 4.31 yuan as the stock resumed trading after being suspended since the end of October. The board approved a plan to buy asset and replenish working capital by selling shares to seven investors in a private placement, according to an exchange statement.
China’s local-government debt swelled to 17.9 trillion yuan, underscoring risks to the financial system as President Xi Jinping rolls out economic reforms.
The nation’s debt including contingent liabilities rose about 13 percent in the six months through June, based on figures in a report by the National Audit Office, posted on its website yesterday. That followed a 48 percent increase over the previous two years.
“We believe the markets and the Chinese government should be alarmed by the rapidly rising leverage, but we do not believe China is on the brink of a debt crisis, especially if the new leaders can take decisive measures to arrest its rising leverage,” Ting Lu, economist at Bank of America Corp., wrote in a note. “Helping more companies to raise equity capital on the stock exchanges will also stimulate equity funding in the private equity market.”
The National Bureau of Statistics is due to release manufacturing data tomorrow. The Purchasing Managers’ Index probably fell to 51.2 this month from November’s 51.4, based on the median estimate of 29 economists in a Bloomberg survey.
--Zhang Shidong. Editors: Allen Wan, Phani Varahabhotla
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at email@example.com