Stocks plunge 2% on liquidity fears
Print Edition
SHANGHAI stocks headed south amid concerns about liquidity as 25 companies prepare to launch initial public offerings this week till early next week.
The Shanghai Composite Index lost 2 percent, the most since May 28, to 5,062.99.
Under China’s IPO system, investors seeking to buy new shares seek to subscribe, with funds held by a custodian and then returned if they fail to secure stock. The current batch of IPOs could lock up 6.68 trillion yuan (US$109 billion), according to a median estimate of six analysts surveyed by Bloomberg News.
“This round of IPO sales has some big-cap companies so it’ll freeze more money than before,” said Wei Wei, an analyst at West China Securities.
A draft of revised rules for margin trading proposed by China’s securities watchdog also weighed. “The control on margin debt has a negative impact on the market as both regulators and brokerages see potential risks as the amount keeps going up,” Wei said.
The Shanghai Composite has surged 145 percent in the past year on a record jump in margin debt and bets the government will lower borrowing costs.
By May end, China’s margin trading had risen to 2.08 trillion yuan as 3.67 million investors had borrowed capital from 92 brokerages.
The revised rules limit brokerages’ margin trading to four times their net capital and forbid them to lend to individuals with average daily assets of less than 500,000 yuan over the past 20 trading days.
The China Securities Regulatory Commission also warned clients of brokerages of the risks involved in the margin trading business. CSRC spokesperson Deng Ge said it will improve the current system and create a stable market with an orderly business fashion.
Brokerages shares fell. China Merchants Securities dropped 3.91 percent to 31.49 yuan, Southwest Securities lost 3.59 percent to 24.72 yuan, and Soochow Securities shed 3.29 percent to 25.84 yuan.
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