China Stocks Fall From 4-Year High on IPO Concern as BYD Slumps

China’s stocks fell from a four-year high as money market rates jumped on the biggest new share sales this year and electric carmaker BYD Co. tumbled.

BYD, the automaker partially owned by Warren Buffett’s Berkshire Hathaway Inc., slumped as much as 47 percent in Hong Kong and plunged by the daily limit in Shenzhen. Citic Securities Co. and Haitong Securities Co. slid at least 3.1 percent after BNP Paribas SA downgraded the stocks. Jiangxi Copper Co. and China Oilfield Services Ltd. gained more than 2 percent to lead an advance for metal and energy producers.

The Shanghai Composite Index dropped 0.1 percent to 3,057.52 at the close. Subscriptions for the biggest new share sales of the year locked up funds. Investors will probably place as much as 3 trillion yuan ($483 billion) of orders for 12 initial public offerings between today and Dec. 25, according to estimates by Shenyin & Wanguo Securities Co.

“The mainland IPOs have caused a liquidity squeeze,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “Still, stocks are unlikely to see a correction soon.”

The CSI 300 Index lost 0.4 percent. Hong Kong’s Hang Seng China Enterprises Index rose 0.5 percent and the Hang Seng Index added 1.1 percent after the Federal Reserve pledged to be patient on raising interest rates. The Bloomberg China-US Equity Index surged 2.2 percent in New York yesterday.

Money Market

The Shanghai Composite has climbed 44 percent this year, compared with the 4.6 percent advance for the H-shares gauge. Mainland shares have rallied on speculation the central bank will reduce lenders’ reserve-requirement ratios after cutting interest rates for the first time in two years last month.

The Shanghai index trades at 11.5 times 12-month projected earnings, the highest in three years, after gaining 24 percent over the past month, according to data compiled by Bloomberg. Its world-beating rally drove the 14-day relative strength index, measuring how rapidly prices have advanced or dropped during a specified time period, to 76.8, higher than 70 for a seventh day. Readings above 70 indicate a price may be poised to fall.

The benchmark seven-day repurchase rate, a gauge of interbank funding availability in the banking system, climbed 135 basis points, or 1.35 percentage point, to 5.24 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That’s the highest level since February. Sunflower Pharmaceutical Group Co. started to market its shares today, while six companies will do so tomorrow and five next week.

Rumors Abound

BYD tumbled 29 percent in Hong Kong, the biggest loss on record since its listing in 2002. The shares slid 10 percent in Shenzhen. Investors are speculating on BYD’s outlook after Geely Automobile Holdings forecast a plunge in profits on the slumping ruble, said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc.

“There are a lot of rumors flying around in the market but there’s nothing concrete at the moment,” she said. “It’s hard to pinpoint what’s causing the sharp decline in the afternoon.”

The company’s “production and operations are operating as usual, this is market behavior, and the company is closely monitoring this,” Edward Zhou, a spokesman for the Shenzhen, China-based company, wrote in an e-mail seeking comment on today’s share-price decline.

Citic Securities lost 3.1 percent and Haitong Securities tumbled 6.8 percent. Their shares have rallied at least 96 percent over the past month on a jump in share trading and the increased use of leverage to buy stocks.

Margin Trading

The recent rally in mainland shares is led by leverage financing, potentially triggering regulatory scrutiny, Judy Zhang, an analyst at BNP, wrote in a research note. The Shanghai Composite may drop to 2,600 if the market deleverages by 1 trillion yuan, according to the report.

Investors bought 105.7 billion yuan of shares using margin debt on the Shanghai exchange yesterday, taking the outstanding value of stock purchases through borrowed money to 648.4 billion yuan, according to data from the bourse.

The People’s Bank of China rolled over at least a portion of a three-month lending facility from September that was set to expire, a government official familiar with the matter said yesterday. Separately, the central bank provided 1 trillion yuan via so-called Pledged Supplementary Lending to support redevelopment of shantytown housing.

PetroChina Co. and China Life Insurance Co. gained at least 1.9 percent in Hong Kong. The Fed said it will be patient on the timeline for higher rates, replacing a pledge to keep borrowing costs near zero for a “considerable time,” even as the economy strengthened.

“Holding off from raising interest rates is good for asset prices globally,” said Zheshang Securities’ Wang.

— With assistance by Shidong Zhang

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