China share index falls on IPO, newcomers sizzle

SHANGHAI (Reuters) - China's key stock index ended down 0.38 percent on Friday as caution over new share supplies deepened after the unexpected announcement of an IPO by Anhui Xinhua Media, although investors snapped up nine new listings including Shenzhen Gas Corp (601139.SS).

The Shanghai Composite Index .SSEC closed at 3,141.353 points but held firmly above the key 125-day moving average, now at 3,099, indicating market sentiment remained stable amid signs of China's steadily improving economy and prospects for strong corporate earnings.

For the week, the index was up a moderate 0.9 percent, with traders noting that institutional investors had returned to the market after winding up year-end settlements.

Cash calls for year-end settlement by institutions, including mutual funds and brokerages, had contributed to a one-month market fall of nearly 10 percent as of Tuesday.

"Institutional investors are generally optimistic about the market trend for the first quarter of next year due to economic and corporate earnings prospects," said a senior trader at a major Chinese brokerage.

However, caution re-emerged on Friday after Anhui Xinhua Media Co said it would launch an initial public offering next week for a listing on the Shanghai Stock Exchange, raising 712 million yuan ($104 million) mainly to expand its sales network.

The IPO announcement just as the year is drawing to a close signaled that Beijing is continuing its campaign to clamp down on asset prices, with steps including adding share supplies and abolishing certain preferential property policies.

"The overall policy is for the stock market to rise only steadily and for the property market to fall, also steadily," said Zheng Weigang, head of investment at Shanghai Securities. "And a quick stock market expansion suits that policy goal."

The government has orchestrated a steady expansion of the share supply in the market since the middle of this year, when the Shanghai index's heated rally took year-to-date gains to a peak of 91 percent in early August.

Chinese companies have raised more than 200 billion yuan from the mainland markets since the China Securities Regulatory Commission lifted a nine-month ban on stock IPOs in June.

The annualized pace of the market's expansion has approached the record in 2007, when the authorities pushed 460 billion yuan worth of IPOs onto the market to help cool a bull run that boosted the Shanghai index six-fold in two years.

NEWCOMERS SIZZLE

Despite the fall in the index on Friday, gaining Shanghai A shares outnumbered losers by 473 to 374, while turnover fell to 101 billion yuan from an already moderate 123 billion yuan on Thursday, indicating investors focused on small-cap shares.

Shenzhen Gas, a liquefied gas distributor that listed a 900 million-yuan IPO in Shanghai on Friday, closed up 118 percent at 15.17 yuan from its IPO price of 6.95 yuan, easily beating an average analyst forecast of only 8.5 yuan and betraying clear signs of heavy speculation in new shares that has been common in China's nascent stock market.

Shenzhen Gas is now valued at 101 times its 2008 earnings compared with an average historical price earnings ratio of 38 times for China's power utility counters. Its forecast PE for 2009, based on analysts' estimates, reached 80 times compared with a sector average of 33 times.

A second batch of eight companies debuting on China's Nasdaq-style ChiNext market in Shenzhen on Friday jumped between 33 and 64 percent, with software maker Beijing Supermap Software Co (300036.SZ) the biggest gainer with a jump to 32.20 yuan from its IPO price of 19.60 yuan.

Leading the losers on Friday was chemical raw materials maker Tanshan Sanyou Chemical Industries Co (600409.SS), which closed down 6.86 percent at 8.55 yuan after the company unexpectedly said late on Thursday that it had given up a previously announced plan to acquire control of a chemical fiber maker.

($1 = 6.83 yuan)