China Stocks Post Biggest Weekly Loss in 4 Months on IPO Concern

China’s benchmark stock index posted its biggest weekly loss in four months amid concerns new share sales are diverting funds from existing equities and a slowing economy is hurting profits.

Great Wall Motor Co., the biggest Chinese maker of SUVs, slid 6.7 percent in Shanghai after third-quarter profit dropped 22 percent. China Construction Bank Corp. retreated to a one-week low after earnings trailed estimates. Anhui Conch Cement Co., the largest producer of building materials, slumped 2.4 percent in Hong Kong after new-home prices in China fell in all but one city monitored by the government last month.

The Shanghai Composite Index dropped 1.7 percent this week, the most since the five-day period ended June 20. The measure slipped less than 0.1 percent to 2,302.28 at the close. Concern that initial public offerings will divert funds from existing shares and a planned stock link with Hong Kong will be delayed has sent mainland shares down the most since March compared with their Hong Kong counterparts.

“New share sales have started and the price of many small-caps are at high levels so a correction is inevitable,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment, which oversees about $120 million. “The correction might be mild with the impact of IPO sales fading next week.”

Six companies including Ocean’s King Lighting Science & Technology Co. marketed IPOs today after three did so yesterday. More than 1 trillion yuan ($163.5 billion) of funds may have been frozen yesterday and today due to new share offers, according to Ping An Securities Co. The interest rate for overnight loans on the Shanghai Stock Exchange surged 238 basis points to 25 percent earlier, the highest since Sept. 25, before paring the increase to 11.05 percent.

Price Gaps

The CSI 300 Index dropped 0.2 percent today. Hong Kong’s Hang Seng China Enterprises Index lost 0.5 percent. The Bloomberg China-US Equity Index added 0.5 percent yesterday.

The Hang Seng China AH Premium Index, which measures the valuation gap between dual-listed stocks in China and Hong Kong, posted its biggest loss since March this week.

Investors are no closer to knowing when the stock program will begin after Hong Kong Exchanges & Clearing Ltd. Chief Executive Officer Charles Li said a week ago there isn’t a timetable for the link. Li previously signaled it would start by Oct. 27. Major banks and money managers have asked the Hong Kong securities regulator to push back the program because of uncertainty over rules, Reuters reported this week.

The delay has “disappointed” investors, said Sam Hsieh, a Taipei-based fund manager at Fuh Hwa Securities Investment Trust Co., who helps oversee the equivalent of $7.8 billion.

Earnings Concerns

Great Wall Motor plunged 5.1 percent in Hong Kong. Third-quarter profit dropped 22 percent to 1.63 billion yuan, the company said yesterday.

Construction Bank slipped 0.3 percent in Shanghai and lost 0.7 percent in Hong Kong. Net income gained 5 percent to 59.6 billion yuan from a year earlier, the nation’s second-biggest lender said in a statement. That compared with the 61 billion yuan median estimate of nine analysts surveyed by Bloomberg.

China CNR Corp. advanced 0.9 percent, extending yesterday’s 5.3 percent gain after the government approved a 97.4 billion-yuan railway investment. Massachusetts state also said it will buy subway trains from China CNR.

The Shanghai Composite has fallen 3.6 percent from this year’s high on Oct. 9. Data this week showed gross domestic product growing in the third quarter at the slowest pace since the first quarter of 2009.

Property Prices

A sub-index of property stocks in Shanghai slumped 3.4 percent this week, the most among five industry groups. Gemdale Corp rose 1.4 percent today, paring its weekly loss to 6.2 percent. A report from the statistics bureau showed new-home prices dropped in 69 of the 70 cities in September, the most since January 2011, when the government changed the way it compiles the data. Anhui Conch dropped 1 percent in Shanghai.

The Shanghai index is valued at 8.4 times 12-month projected earnings, compared with the five-year average multiple of 10.8, according to data compiled by Bloomberg. Trading volumes were 34 percent below the 30-day average today.

— With assistance by Shidong Zhang

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