China shares near 5-1/2-month low, as Neway debut diverts funds

Thu Jan 16, 2014 11:58pm EST

* HSI +0.8 pct, H-shares +0.4 pct, CSI300 -0.7 pct

* ChiNext outshines major benchmarks this week, up 5 pct

* Macau Legend sinks after new share placement

By Clement Tan

HONG KONG, Jan 17 (Reuters) - China shares neared 5-1/2-month lows early Friday, diverging from Hong Kong markets, as the first initial public listing to debut in the mainland in more than a year rose sharply, drawing money from large-cap stocks.

Neway Valve (Suzhou) Co Ltd, a major valve maker, surged more than 30 percent in Shanghai, tripping circuit breakers meant to contain price gains on debut days.

The halt in trading of Neway shares "evitably weighs on sentiment, but I think the bigger problem today is the robust demand for new listings suggested by some company announcements released overnight," said Zhang Qi, a Shanghai-based analyst with Haitong Securities.

At midday, the CSI300 of the largest Shanghai and Shenzhen A-share listings was down 0.7 percent, while the Shanghai Composite Index sank 0.6 percent to 2,012.3 points, flirting with key support seen at 2,000 points.

Earlier this week, both hit their lowest intra-day levels since early August, a level they neared on Friday. They are broadly flat on the week, extending a sluggish start to the year on fears that new IPOs could divert funds from big-caps making up market indexes.

This compares to the 0.7 percent climb so far this week on the China Enterprises Index of the top offshore Chinese listings in Hong Kong and the 1.5 percent gain for the Hang Seng Index. On Friday, they were up 0.4 and 0.8 percent, respectively.

Still, all four major benchmarks trailed the nearly 5 percent gain for the Chinext Composite Index of mainly technology startups listed in Shenzhen this week, as investors looked to maximise returns with new listings increasing competition for limited funds available.

Illustrating the strong demand for new IPOs, Yangzhou Yangjie Electronic said its IPO was 72.3 times oversubscribed in the tranche of shares it offered online. Jiangsu Pacific Quartz became the latest to postpone its planned Shanghai IPO.

Chinese financials were the top index drags in the offshore markets. China Minsheng Bank slid 1.9 percent to its lowest in more than a year in Shanghai and shed 1 percent in Hong Kong.

As liquidity concerns persist, concerns about off balance sheet issues have risen in the past week. Industrial and Commercial Bank of China , the world's largest bank by assets, had said on Thursday that it would not assume the "main responsibility" for repaying investors in a troubled off-balance-sheet investment product that it helped to market.

Macau Legend, which only listed in June after reducing the size of its IPO, sank 4.6 percent after announcing plans to raise $1.35 billion in a sale of as many as 188 million new shares priced at a 7.8 percent discount to its Thursday closing price.

But there were gains for China COSCO Holdings , whose shares climbed 5.3 percent in Hong Kong and 2 percent in Shanghai after China's largest bulk shipping company said on Thursday it returned to profit in 2013, avoiding a possible A-share delisting after losses for two consecutive years.

China Oilfield Services surged 6.2 percent in Hong Kong. Its H-shares have rebounded more than 7 percent after closing on Tuesday at their lowest since end-October.

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