The main Shanghai Composite Index fell as much as 2.3% intraday, before suspected buying by state-backed funds known as the “national team” in the last half-hour of trading helped narrow the day’s loss to 0.3%.
The more lively and speculative Shenzhen market saw deeper losses, with its benchmark Shenzhen Composite Index and the Nasdaq-style ChiNext board both down 3.6%. The two indexes both slumped as much as over 6% in the last 30 to 40 minutes of trading. The Shenzhen index’ drop was its largest since it fell 4.9% on Dec. 12.
The apparent trigger was Leshi internet Information & Technology, which provides online video broadcasting services. The firm resumed trading Monday after a period of suspension. The stock initially rose at the open but started tumbling just after the lunch break. Selling soon spread wider on the ChiNext board, where the technology firm is a bellwether and a barometer of general sentiment.
This happened in a climate of nervousness following a Sunday article published by the official Xinhua News Agency that described the acceleration in initial public offering approvals in recent months as a normalization of that market, which has seen several IPO moratoriums over the past decade.
“We saw a crash-style slump during the last trading hour today as panic spread because sentiment was severely hurt by Xinhua’s rhetoric,” said Deng Wenyuan, an analyst at Soochow Securities.
China approved 227 IPOs last year, slightly more than 223 in 2015. But most of last year’s approvals came after July. The first half of 2016 saw few listings, as Chinese authorities were trying to stabilize the share market after a selloff that began in the summer of 2015.
The Chinese securities regulator has picked up the pace of IPO approvals since the start of this year, greenlighting 24 IPOs two weeks into the new year.
“Xinhua’s article sent a signal to the market that Beijing supports the acceleration of IPOs, which was a huge blow to market confidence,” said Amy Lin, senior analyst at Capital Securities, noting the deals will drain cash from previously listed shares.
We would have thought that a pickup in IPO’s was bullish, but then again, this is China. At PE’s of 51x, anything can happen.