Chinese shares fall as flood of IPOs adds to risk-off sentiment

Shanghai

CHINESE stocks fell on Monday over concerns that a flood of new listings will overload the market, adding to risk-off sentiment in emerging markets.

The Shanghai Composite Index slid 2.6 per cent, its biggest loss in two months and the worst among the region's major benchmarks. The tech-heavy ChiNext Index lost as much as 3.4 per cent before ending the day down 2.7 per cent.

China said late on Friday that its new trading venue will start operating on July 22, raising concern that the fresh supply will drain demand for existing stocks. Several companies open their books to investors this week.

"The correction in the market is likely due to some liquidity pressure as a series of new IPOs in the new

science and technology board attract the attention of investors," said Gerry Alfonso, director of the international business department at Shenwan Hongyuan Group Co.

"In that scenario, the correction is likely to be short-lived as it could be considered as relocation of capital among listed securities."

The tech board opening announcement came as strong US employment data made traders reassess the likelihood of a rate cut from the Federal Reserve this month.

That strengthened the dollar, leading to losses across Asia when the region's markets reacted on Monday. Hong Kong's Hang Seng Index fell as much as 2 per cent before paring to 1.5 per cent at the close, the most since June 12.

About 162 firms will list on Shanghai's tech board in the second half, with a liquidity demand of US$16.4 billion, Morgan Stanley analysts led by Laura Wang wrote in a note dated Sunday.

While that estimate is nearly double earlier forecasts, the total liquidity impact on A shares should be limited due to the board's small size relative to the whole market, they wrote.

Foreign investors are pulling out of the mainland, dumping 3.6 billion yuan (S$711 million) of A shares via exchange links with Shanghai and Shenzhen, according to data compiled by Bloomberg. That's the biggest single-day sale since May 23.

A gauge of brokerage shares, a barometer of market sentiment, slid 3.4 per cent, while tech stocks weighed on the CSI 300 Index as a sector index dropped 3.3 per cent.

Zhongjin Gold Corp lost 3.1 per cent and Shandong Gold Mining Co fell 2.9 per cent as gold futures were hit by the stronger than expected US payroll gains. BLOOMBERG