CHINA STOCKS: Post biggest decline of year

BIGGEST ONE DAY DECLINE

China’s main stock index has posted its biggest one-day decline this year, after one firm’s successful share issue raised fears of market overheating.

Shares in Shanghai and Hong Kong tumbled on Wednesday as investors snapped up two newly listed mainland construction groups while selling down the rest of the market after reports that China’s central bank might rein in bank lending.

Shares in China State Construction Engineering rose by as much as 90 per cent on their debut before closing 56 per cent stronger in Shanghai. China’s largest housebuilder had last week raised Rmb50.2bn ($7.34bn) in the world’s biggest initial public offering since Visa raised $19bn in March 2008.

The surge of funds into the market has reignited fears of a new bubble forming in both the property and share markets. The Shanghai Composite index has doubled since it hit bottom late last year, beating all comparable indices around the world.

Analyst Wang Mingzhi of GF Securities said CSCEC’s closing price of 6.53 yuan was above its “fair value” of five yuan. “The jump is obviously driven by speculative funds,” he said. “It’s hard to find a rational explanation.”

Fellow analyst, Mao Nan of Orient Securities added that “with lots of cash at home, and capital flowing in from abroad, the main problem of the market is excessive liquidity”.
Share declines were also seen in Hong Kong, where the main Hang Seng index lost 2.4%. The debut trading of state-run CSCEC came a week after it sold a 40% stake in the business for 50.2bn yuan ($7.3bn; £4.5bn).

The successful sale was the world’s biggest share issue so far this year. CSCEC, China’s biggest housebuilder, has said it will use the proceeds of the sale to expand its business. Chinese house prices rose in June for the first time in seven months.