Liquidity concerns, housing prices hit equities

Benchmark index drops to three-week low; financial institutions, liquor companies lead market decline

China's stock market sank to a three-week low on Monday amid concerns that renewed initial public offerings would hit liquidity.

The market was also affected by concerns over tighter conditions in the interbank market and continued cooling in the property sector, which many investors fear will worsen the economic slowdown.

The benchmark Shanghai Composite Index fell 1.05 percent to 2,005.18 points, with turnover at 53 billion yuan ($8.55 billion). Although transaction volume was up slightly from 51.6 billion yuan on the previous trading day, it was still a relatively low level.

Financial institutions including bank shares, along with liquor producers, led the market's fall.

"The concern about new IPOs draining capital is still hanging over the A-share market. Whether it has been fully priced in won't be known until we see the pace of new offerings. It is still unclear," said Zito Ji, a mutual fund analyst based in Shanghai.

His company has been cutting A-share equity allocations.

As of last Friday, 343 companies had posted draft IPO prospectuses on the China Securities Regulatory Commission's website.

China's leading distiller, Kweichow Moutai Co Ltd, dropped 4.63 percent. Rival Wuliangye Yibin Co Ltd slid 2.5 percent after media reports said the company cut the price of a key product.

Commercial bank shares, meanwhile, were buffeted by new restrictions on interbank borrowing. China Minsheng Banking Corp Ltd fell 1.39 percent. Industrial Bank Co slid 2.81 percent.

The People's Bank of China (the central bank) said in a statement on its website on Friday that a commercial bank should limit interbank borrowing to less than one-third of its liabilities, while its lending to a single other financial organization shouldn't exceed 50 percent of its Tier 1 capital.

Tier 1 Capital is a term used to describe the capital adequacy of a bank. Tier 1 capital is also known as core capital, which includes equity capital and disclosed reserves.

UBS AG analysts wrote in a note that the new interbank rules may lead to turbulence in the near term, Bloomberg News reported.

The analysts urged caution on shares of Minsheng Bank, Bank of Chongqing Co and Chongqing Rural Commercial Bank.

The market was also unsettled by data released over the weekend by the National Bureau of Statistics indicating that property prices are softening further.

Among 70 medium-sized to large cities surveyed by the NBS, only 44 recorded month-on-month price increases for new housing in April, down from 56 cities in March.

Eight cities had lower prices in April, compared with just four in March.

Analysts said the property figures add to concerns the economic slowdown is deepening, while the authorities' tightening of the interbank market will add more pressure to the sector.

xieyu@chinadaily.com.cn