China Stocks Fall Most in Two Weeks on Concern IPOs to Sap Funds

Chinese stocks fell by the most in two weeks, led by small-company shares, amid concern new initial public offerings may divert funds from existing equities.

Leshi Internet Information & Technology Co. and Huayi Brothers Media Corp., the biggest companies in the ChiNext index, slid at least 2.9 percent. China Eastern Airlines Corp. lost 3.6 percent after rallying by the daily limit yesterday. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. retreated 2.9 percent after its first-half net income decreased 74 percent.

The Shanghai Composite Index fell 1 percent to 2,207.11 at the close for the biggest loss since Aug. 7, while the ChiNext slid 2.3 percent. The ten companies that will start to market IPO shares this week, including HMT Xiamen New Technical Materials Co. and Hubei Feilihua Quartz Glass Co., may freeze about 800 billion yuan ($130 billion), according to the Shanghai Securities News.

“Economic growth risks are increasing, while upcoming IPO share sales will put pressure on market liquidity,” said Dai Ming, a money manager at Hengsheng Hongding Asset Management Co. in Shanghai, which oversees about $193 million. “The market may need a breather and consolidation here before finding a direction.”

The CSI 300 Index lost 0.8 percent to 2,324.09. The Hang Seng China Enterprises Index was little changed as PetroChina Co. rallied 1.8 percent. The Bloomberg China-US Equity Index added 1 percent yesterday.

IPO Rush

Investors’ rush into Chinese IPOs, which have rallied an average 94 percent from their issue price this year, or seven times more than the global average, contrasts with lackluster demand among local investors to participate in the broader stock market. Traders have liquidated about 1.3 million mainland equity accounts since the end of March, leaving the number of funded accounts at a four-year low of 52.55 million.

Leshi Internet slid 4 percent, while Huayi Brothers, China’s biggest listed movie maker, dropped for a third day.

China Eastern, the nation’s second-largest carrier, slumped a day after it jumped 10 percent on the prospect it will benefit from an aviation investment fund.

Baotou Rare-Earth led declines for material shares, while China Hainan Rubber Industry Group Co. lost 4.7 percent to pace declines among consumer companies reliant on economic growth.

The Shanghai Composite fell 0.5 percent yesterday as speculation new bank lending isn’t picking up added to concerns about the strength of the recovery. Data this month showed the weakest credit growth since 2008 and an unexpected slowdown in industrial output. Still, the equity measure has rebounded 11 percent since mid-March on prospects China will reduce government ownership of state-owned enterprises and a link between exchanges in Hong Kong and Shanghai will fuel inflows.

Baotou Rare-Earth

The Hong Kong-Shanghai stock connect’s daily quota is likely to be used up fast at the initial stage with little selling of A shares, Andy Maynard, CLSA Ltd.’s global head of trading and execution, said in a briefing in Hong Kong today.

Participants see A shares as very cheap while quotas under the Qualified Foreign Institutional Investor program, known as QFII, are already insufficient to satisfy interest, he said.

A link connecting bourses in Hong Kong and Shenzhen Kong has been submitted for approval, Caixin reported today on its official microblog, citing Xiao Zhijia, deputy director of development of the Shenzhen Municipal Government Financial Services Office.

China Yangtze Power Co., owner of the world’s biggest hydropower project, advanced 4.2 percent for its biggest gain since October 2010.

SOE Reform

Its controlling shareholder China Three Gorges Corp. and China National Nuclear Corp. signed an agreement on Aug. 22 to promote a nuclear power project in the southern province of Hunan and to cooperate on nuclear power technology research, China Yangtze Power said in an exchange statement.

The State-owned Assets Supervision and Administration Commission may soon announce guidelines for mixed-ownership reforms of state-owned enterprises and the creation of state-owned asset investment companies, the China Securities Journal reported, without citing anyone.

The southern province of Guangdong asked local governments and companies to submit a report on SOE reform by the end of September and may start a trial of “market cap management” for listed SOEs, the Shanghai Securities News reported.

The Shanghai index is valued at 8.1 times 12-month projected earnings, compared with the five-year average multiple of 11.1, according to data compiled by Bloomberg. Trading volumes in the index were 3.4 percent above the 30-day average.

— With assistance by Shidong Zhang

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