Stocks close mixed on market expansion pressure
Updated: 2007-09-21 16:12
The country's effort to drain capital from the domestic market to address the excessive liquidity problem has taken off, which put the stock market under severe capacity expansion pressure.
The most immediate test the market is facing is a slew of huge share offers. After China Construction Bank (CCB), China Shenhua Energy Co Ltd and China Oilfield Service Ltd (COSL), PetroChina came in sight.
The China Securities Regulatory Commission announced yesterday it will review PetroChina Co Ltd's A-share initial public offering (IPO) plan next Monday, or September 24, the Shanghai Securities News reported today.
The company is one of the country's largest oil and gas producers. Its prospectus suggests that PetroChina plans to issue no more than 4 billion yuan-denominated A shares in Shanghai. Judging by the HK$12.38 close of the company's Hong Kong-listed H shares yesterday, the IPO could raise roughly 50 billion yuan.
The four companies may raise or absorb as much as 181 billion yuan from the market, including CCB's 58 billion yuan from 8 billion shares, Shenhua's 67 billion yuan from 1.8 billion and COSL's 6 billion yuan from 500 million shares.
Other challenges which divert capital to other products and markets include the issuance of corporate bonds by listed companies, the expansion of the qualified domestic institutional investor products, and the direct H-share investment scheme to allow mainlanders to buy Hong Kong stocks.
"With a huge increase in the supply of equity, we expect the index to fall gradually in coming weeks," said analyst Zheng Weigang at Shanghai Securities. Analysts expect the index to hit a ceiling at 5,500 before the National Day holidays from October 1 to 7, when the market will be closed, while a floor is seen at 5,200.
In the meantime, the government is worried about the process of reducing excessive liquidity could be too fast and dramatic for the market to cope with, analysts said. In its latest move, the financial authority revealed its plan to allow individuals to invest in foreign stocks for the first time.
The Chinese mainland is to impose a quota on investments on the Hong Kong stock market, reducing capital outflows to a fraction of the US$100billion-plus forecast when its outward investment scheme was announced last month.
Liu Mingkang, chairman of the China Banking Regulatory Commission, said there would be no limit on individuals. But he said there would be tight controls on the total amount. Liu said there would be a "quota in general" and when that was reached, the State Administration of Foreign Exchange would reassess market activity. "They can lift and readjust the quota if necessary and appropriate - it's a flexible ceiling," he told the Financial Times.
The heated stock market may be seen as a reflector of China's red-hot economy. Inflation is expected to continue rising in the fourth quarter alongside mounting wage uncertainties, according to a central bank survey of 20,000 Chinese households last month.
Meanwhile, business leaders and bankers are growing more concerned about the economy overheating, predicting more tightening measures may be in the pipeline, according to two separate central bank surveys for the third quarter.
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