China Stocks Pare Best Weekly Gain in a Month as Financials Slip

  • Securities regulator approves second batch of 10 IPOs
  • Developers decline as speculation of further stimulus fades

China’s stocks fell for the first time in five days as speculation of increased monetary stimulus faded and investors prepared for the first initial public offerings in five months.

The Shanghai Composite Index lost 1.7 percent at the close. Poly Real Estate Group Co. and Bank of China Ltd. slid as a gauge of financial stocks fell for the first time in five days. Hebei Iron & Steel Co. paced losses among commodity companies, while China Railway Group Ltd. climbed after the company announced a 11.55 billion yuan ($1.8 billion) asset swap with China Railway Erju Co.

The Shanghai gauge advanced 2.6 percent this week as speculation the People’s Bank of China will extend monetary easing to tackle the sharpest economic slowdown in a quarter of a century boosted developers and financial shares. Ten Chinese companies began subscriptions for IPOs this week, the first of 28 offerings this month that could tie up 3.4 trillion yuan, according to estimates compiled by Bloomberg. China Securities Regulatory Commission said in a statement on its microblog that it’s approved a second batch of 10 IPOs.

“After the recent performance, the financial sector could come under some pressure as recent positive developments are already largely priced in,” said Gerry Alfonso, a trader at Shenwan Hongyuang Group Co. in Shanghai. “The announcement of the details of the second IPO batch could also add some downward pressure on the overall market as there are now exact dates, rather than guesswork.” He favors technology, health care and environmental shares for the mid to long term.

The CSI 300 Index dropped 1.9 percent. The Hang Seng China Enterprises Index of mainland-listed companies in Hong Kong declined 1.5 percent, erasing a weekly advance, while the Hang Seng Index lost 0.8 percent. Trading volume in Shanghai was 23 percent below the 30-day average.

The premium of Shanghai dual-listed stocks over the Hong Kong-traded counterparts grew to 42 percent on Thursday, the widest in three months. The Hang Seng China AH Premium Index narrowed 1.3 percent on Friday.

China introduces a circuit-breaker mechanism for the A-share market effective Jan. 1, 2016, according to statement posted on the Shanghai stock exchange. Under rules approved by the securities regulator, a move of 5 percent in the CSI 300 index will trigger a 15-minute halt for stocks, options and index futures, while a move of 7 percent will close the market for the rest of the day, the Shanghai bourse said in a statement on its website. 

The mechanism is designed to calm volatility after price fluctuations in the benchmark index jumped to an 18-year high in August and remained elevated even as the government intervened to halt a $5 trillion equity rout.

Developers Drop

A gauge of financial companies slid 2.7 percent as Bank of Nanjing Co. and New China Life Insurance Co. shed more than 4 percent. The Shanghai property index dropped 2.8 percent, the most in a week. Poly Real Estate, the second-biggest Chinese developer, declined 3.2 percent, reducing this week’s surge to 20 percent. 

Developers rallied this week, fueled by speculation the government will extend stimulus measures and media reports that the state may allow mortgage interest payments to be tax-deductible. Xinhua cited a Chinese Academy of Social Sciences report as saying the government should adopt the policy on mortgages to help reduce home buyers’ payment burdens.

Premier Li Keqiang said at a seminar with economists on Wednesday that China must accelerate structural reform to promote long-term stable and healthy economic development and will encourage mergers and acquisitions, according to a statement on the government’s website. State-owned coal companies saw profits fall 62 percent in the January-October period from a year ago, according to data from the NDRC.

Yang Quan Coal Industry Group Co. declined 1.9 percent after rising as much as 2.1 percent earlier. PetroChina Co. slid 2.7 percent, paring this week’s gain to 1.4 percent.

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