China’s Stocks Post Biggest Loss in Seven Weeks Over IPOsWeiyi Lim
China’s stocks fell, capping the benchmark index’s biggest loss in seven weeks, amid concerns new share sales will divert funds from existing shares and a property slowdown will hurt economic growth.
Yonyou Software Co. and Neusoft Corp. plunged more than 7 percent as a gauge of technology companies slumped the most among 10 industry groups. Leshi Internet Information & Technology Co., the biggest company in the ChiNext index, posted its steepest loss in two months. China Vanke Co. and Poly Real Estate Group Co. led a retreat for property developers.
The Shanghai Composite Index fell 1.6 percent to 2,023.74 at the close, the steepest loss since April 28. Regulators are restarting the market for initial public offerings after a four-month halt in new deals, with at least four companies marketing their shares to investors this week.
“IPO sales cause a liquidity drain from the market and short-term volatility with investors selling existing shares, particularly small-caps, to subscribe to new shares,” said Wu Kan, a money manager at Shanghai-based Dragon Life Insurance Co.
Zhejiang Shapuaisi Pharmaceutical Co. set the price of IPO shares at 21.85 yuan, joining four other companies including Guangdong Ellington Electronics Technology Co. that have started marketing their shares after new stock sales resumed. Shapuaisi Pharmaceutical priced its shares at 14.1 times reported earnings, compared with the industry average of 33.5 times, according to the prospectus.
“The secondary market is bleeding,” said Cai Feng, a strategist at Guoyuan Securities Co. in eastern China’s Anhui province. “Investors want to speculate on new stocks.”
About 100 Chinese companies will sell shares in mainland IPOs by yearend, China Securities Regulatory Commission Chairman Xiao Gang said on May 19.
The CSI 300 Index dropped 1.5 percent today, while the Hang Seng China Enterprises Index retreated 0.8 percent at 3:31 p.m. The ChiNext plunged 3.2 percent, the most since March 27. The small-caps gauge has gained 24 percent over the past year, while the Shanghai Composite slid 5.6 percent. The ChiNext trades at 53 times reported profit, compared with 9.9 times for the large-stocks measure.
Yonyou Software slid by the daily limit of 10 percent, while Neusoft plunged 7.1 percent. Leshi Internet, a provider of online videos traded on the ChiNext, slid 1.8 percent, adding to yesterday’s 4.7 percent slump. The shares have jumped 65 percent over the past year.
“Investors are profit taking after the Chinext’s recent gains,” said Zhou Lin, an analyst at Huatai Securities Co.
A gauge of property shares in the Shanghai index fell for a third day, losing 1.2 percent. The measure has dropped 7 percent this year, the second-worst performer among industry groups. China Vanke, the biggest developer, fell 1.4 percent today, while Poly Real Estate dropped 0.8 percent.
Premier Li Keqiang said yesterday that the nation will avoid a hard landing, while limiting the scale of any stimulus to support economic growth. His comments came after data showed new-home prices fell in half the cities tracked by the government for the first time in two years.
China’s property market downturn this time will be more prolonged than the last two corrections, Tom Byrne, a senior vice president at Moody’s Corp, said at a conference in Shanghai today. A 10 percent drop in property sales and building construction will lower economic growth to 5 percent to 6 percent, Byrne said.