Business / Finance

Equities slide on liquidity worries

By Xie Yu in Shanghai (China Daily) Updated: 2014-04-22 07:23

Investors fear that new offerings will drain funds from existing companies

Chinese stocks fell on Monday as investors worried that a new round of initial public offerings could drain market liquidity.

The China Securities Regulatory Commission on Friday released the names of 28 companies that have disclosed IPO plans, indicating the authority may soon resume approval of new issues.

The "preliminary disclosures" of IPO plans, which explain the size and purpose of the planned issues, were posted to the CSRC's website. That move signals the authority has accepted the applications, which must still undergo further examination by the listings committee.

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"The disclosure on Friday night signals the regulator is near to issuing approvals, and these 28 companies are highly likely to get approval for new offerings in May," said a Shanghai-based IPO sponsor who declined to be identified.

The benchmark Shanghai Composite Index slid 1.52 percent to 2,065.83 points on Monday. Turnover expanded to 81.7 billion yuan ($13.2 billion) from 72.6 billion yuan on Friday.

"The new round of IPOs will drain capital while suppressing the performance of stock indexes," said Guan Qingyou, head of research at Minsheng Securities.

Other analysts, however, pointed to stabilizing factors that they said will add liquidity to the A-share market, such as larger quotas for overseas investors under the qualified foreign institutional investor and renminbi qualified institutional investor programs, as well as cross-border trading (the so-called "through train") between Shanghai and Hong Kong.

The CSRC suspended IPO approvals in October 2012 and began reforms to the process that it said would combat fraud and improve disclosure. Approvals resumed in January under the new rules, allowing 48 companies to be listed in the first two months this year.

But issues were suspended again in March, after the new rules were criticized as insufficient to prevent aggressive cash-outs by existing shareholders and insider trading.