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Business / Markets

Equities rise to 11-week high on stability hopes

By Li Xiang (China Daily) Updated: 2015-11-10 09:40

Resumption of initial public offerings helps deflect gloom over weak data, trade prospects

Stock prices rose to an 11-week high on Monday as the resumption of initial public offerings by the regulator was interpreted by investors as signs of growing confidence by the authorities that the country's stock market has stabilized.

The benchmark Shanghai Composite Index gained 1.58 percent to close at 3,646.88 points, after rebounding by more than 20 percent from its August low. The Shenzhen Component Index rose 1.47 percent while the startup ChiNext Index jumped by 2.37 percent.

Monday's gain was led by financial stocks which were boosted by the government decision to lift the IPO ban imposed in July to stem the dramatic market fall in the summer.

The Internet sector also rose strongly on Monday with the gauge of information technology companies advancing 3.83 percent.

The resumption of IPOs, which is often regarded as a negative factor that could burden the market with new share supplies, will unlikely change the market's rebound course, and the new IPO rules introduced by the regulator will likely attract fresh capital into the market, analysts said.

On Friday, the China Securities Regulatory Commission announced the decision to resume the IPO process after halting the mechanism since early July.

In addition, the regulator further reformed the IPO system by scrapping the requirement for fund deposits when investors apply for new share subscription.

The reformed IPO process is aimed at preventing new share sales from draining liquidity from the market, which can cause sharp market volatilities, the regulator said.

In early June, 25 IPOs locked up a staggering 5.69 trillion yuan ($890 billion), according to the CSRC, as investors flocked to bid for new shares which are considered a risk-free investment option with guaranteed gains as they often surged substantially on their listing debuts.

"There have been concerns about the reopening of IPOs for some time. Such concerns of liquidity diversion by IPOs have become a market overhang," Hong Hao, chief strategist at investment bank BOCOM International Holdings Co in Hong Kong, wrote in a research note.

"The new rules of not locking in IPO deposits should ease liquidity disruption. The market should stretch its rebound now that the overhang is removed," he said.

The positive market response on Monday also indicated that the IPO resumption was largely seen by investors as a timely and positive step to restore the fund raising function of the market for companies that face financing difficulties amid a slowing economy, analysts said.

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