The increasing number of initial public offerings (IPOs) since the government lifted a year-long ban on capital-raising led to a slump of 2.97 per cent on the stock market yesterday, casting a shadow on investor confidence in the following weeks.
The benchmark Shanghai composite index closed at 1,612.73 points on the last day of July. Turnover in Shanghai A shares was a moderate 19.4 billion yuan (US$2.425 billion).
Yesterday, A shares continued their downward trend since Friday, when most of the quality stocks started to dive, sparking concern that too many IPOs had kept trading sluggish in July. The trend is expected to further hurt sentiment in August.
"Today's fall is mostly related to the increasingly massive new IPOs such as Poly Real Estate and Daqin Railway. The China Securities Regulatory Commission is accelerating the pace of IPOs, faster than the market expected," Cheng Weiqing, an analyst with CITIC Securities, said.
Just after Poly Real Estate listed on the Shanghai stock market on Monday, Daqin Railway Co Ltd, which launched the second-largest domestic IPO this year in July, announced that it would list on the Shanghai bourse today.
Shares in the new listed Poly Real Estate jumped to 19.30 yuan (US$2.41), up 38.35 per cent from its issue price of 13.95 yuan (US$1.74) on its first day of trading.
The new listing drew large capital from other real estate developers who witnessed a general loss yesterday. Leading real estate developer China Vanke Co Ltd was down by 4.48 per cent to close at 5.54 yuan (69.25 US cents). Financial Street Holding Co Ltd slumped by 7.05 per cent to close at 8.18 yuan (US$1.02).
Analysts pointed out that the slew of new IPOs, rather than the government's recent real estate sector hurdle, actually caused the blue chip losses.
"Most in the property sector will be encouraged by the recent capital gains tax for owners who live in their properties instead of an arbitrary price hike and it will secure healthy growth in the long term.
"On the other hand, second-hand property trading will be reduced significantly, which will create great demand for new home sales in the short term, so developers will see their earnings continue to grow," Cheng said, adding that there is no reason for such share prices to fall in the short and long term.
Banking shares also dropped yesterday. Bank of China, the country's second-biggest lender, dropped 2.61 per cent to close at 3.36 yuan (42 US cents). Smaller commercial lender Huaxia Bank slumped 4.15 per cent to close at 3.93 per cent (49.1 US cents).
Robust lender China Merchants Bank only saw a slight fall of 1.08 per cent, as traders viewed it as a higher quality stock.
"The falls led the valuation of banking shares to a reasonable zone and a lower risk investment sector," She Minhua, an analyst with China Securities, said.
She attributed the drop to the flow of new IPOs and anticipation of the government's tighter hold on the fast-growing economy.
The pressure of new IPOs also affected gold stocks prices yesterday. Shares in Zhongjin Gold Co Ltd went down 5.35 per cent and shares in the Shandong Gold Mining Co Ltd dropped 5.87 per cent.
"The global gold price is continuing to rise and there is a close correlation between the gold price and gold stocks price. The two gold stocks have a good ore supply and are great investment value. There was no need for them to dive by more than 5 per cent yesterday," Cheng said.
Analysts pointed out that it is a good opportunity to buy high quality stocks while everybody is selling shares.
(China Daily 08/01/2006 page9)
