The mainland stock market may see a sell-off this week as wary investors digest the prospect of an influx of equities after the regulator announced it would soon lift an unofficial nine-month ban on initial public offerings.
The Shanghai Composite Index could fall as much as 10 per cent in the coming trading sessions as investors took a wait-and-see attitude towards the new policy, analysts and fund managers said.
The China Securities Regulatory Commission unveiled a draft rule governing the new listing system after the market closed on Friday, saying new flotations would hit the stock exchanges soon after it finalised the rule.
“Selling pressure will by all means occur when trading opens this week,” said West China Securities trader Wei Wei. “The question is how severe a market drop will appear.”
Not a single company has been listed on the mainland exchanges since September, when the regulator cut equity supply to buoy the weak market.
The Shanghai gauge has gained 42.66 per cent this year, and a source close to the CSRC said the regulator believed the market had stabilised.
The CSRC is seeking public opinions on the draft until June 5.
It has been reported that a first listing would be launched at the end of June.
Unable to assess the exact damage to the market, analysts said it remained to be seen how many initial share offers would flood the bourses in the coming months.
“The regulator could still control the pace of IPOs to prevent a sharp fall,” said a Shanghai-based analyst.
“Indeed, the market was already overvalued following the rally this year.”
Under the new system, subscribers are required to take part in either online or offline bidding, a move to give small investors a greater chance of winning new shares.
Before, institutional investors could bid through both bidding systems to obtain more shares at an artificially low price.
The market already faced selling pressure before the flotation news was announced.
The massive sell-off by state-owned companies whose non-tradable shares became free-floating in the past months after lock-up periods expired had a huge impact on the market, Xinhua said yesterday, citing a report by the China Centre for Market Value Management.
A total of 208 billion shares will be unlocked this year, which will dilute stock prices.
The report indicated that some of the big shareholders were rigging the prices to create an easy exit for their previously non-tradable shares when the lock-up period ended. It did not provide examples.
“Some of the big funds have been withdrawing from the market for some time,” said Dazhong Insurance fund manager Wu Kan. “It was a savvy move to cash out amid the recent strong gain.”
Analysts said the market jump this year was also a result of speculative capital after banks gave companies easy credit to fund their construction projects in line with Beijing’s 4 trillion yuan (HK$4.54 trillion) stimulus package. Part of the funds were illegally diverted to the capital market to chase short-term gains, analysts said.
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IPO move may spark sell-off on mainland
Price dilution from fresh listings feared
Daniel Ren in Shanghai
25 May 2009
The mainland stock market may see a sell-off this week as wary investors digest the prospect of an influx of equities after the regulator announced it would soon lift an unofficial nine-month ban on initial public offerings.
The Shanghai Composite Index could fall as much as 10 per cent in the coming trading sessions as investors took a wait-and-see attitude towards the new policy, analysts and fund managers said.
The China Securities Regulatory Commission unveiled a draft rule governing the new listing system after the market closed on Friday, saying new flotations would hit the stock exchanges soon after it finalised the rule.
“Selling pressure will by all means occur when trading opens this week,” said West China Securities trader Wei Wei. “The question is how severe a market drop will appear.”
Not a single company has been listed on the mainland exchanges since September, when the regulator cut equity supply to buoy the weak market.
The Shanghai gauge has gained 42.66 per cent this year, and a source close to the CSRC said the regulator believed the market had stabilised.
The CSRC is seeking public opinions on the draft until June 5.
It has been reported that a first listing would be launched at the end of June.
Unable to assess the exact damage to the market, analysts said it remained to be seen how many initial share offers would flood the bourses in the coming months.
“The regulator could still control the pace of IPOs to prevent a sharp fall,” said a Shanghai-based analyst.
“Indeed, the market was already overvalued following the rally this year.”
Under the new system, subscribers are required to take part in either online or offline bidding, a move to give small investors a greater chance of winning new shares.
Before, institutional investors could bid through both bidding systems to obtain more shares at an artificially low price.
The market already faced selling pressure before the flotation news was announced.
The massive sell-off by state-owned companies whose non-tradable shares became free-floating in the past months after lock-up periods expired had a huge impact on the market, Xinhua said yesterday, citing a report by the China Centre for Market Value Management.
A total of 208 billion shares will be unlocked this year, which will dilute stock prices.
The report indicated that some of the big shareholders were rigging the prices to create an easy exit for their previously non-tradable shares when the lock-up period ended. It did not provide examples.
“Some of the big funds have been withdrawing from the market for some time,” said Dazhong Insurance fund manager Wu Kan. “It was a savvy move to cash out amid the recent strong gain.”
Analysts said the market jump this year was also a result of speculative capital after banks gave companies easy credit to fund their construction projects in line with Beijing’s 4 trillion yuan (HK$4.54 trillion) stimulus package. Part of the funds were illegally diverted to the capital market to chase short-term gains, analysts said.
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