January 20, 2014 / 6:20 AM / 4 years ago

China benchmark rate climbs sharply as IPOs suck up cash

SHANGHAI, Jan 20 (Reuters) - China’s money rates rose on Monday following a similar rise on Friday, with traders primarily blaming the resumption of initial public offerings (IPOs) in January as the immediate factor taking cash out of circulation.

Eight Chinese companies said on Monday that they would list on China’s smaller Shenzhen Stock Exchange on Tuesday, the first listings on the bourse since a 14-month regulatory freeze on IPOs to support the stock market.

The listings followed last Friday’s trading debut of Neway Valve (Suzhou) Co Ltd on China’s main Shanghai Stock Exchange, which jumped 43.5 percent on the first trading day, just shy of its daily limit, underscoring pent-up demand that bodes well for a raft of new issues to come.

The weighted-average benchmark seven-day bond repurchase agreement rate leapt up over a full percentage point by midday to 6.4847 percent, up from 5.1688 percent at Friday’s close.

The average one-day “overnight” repo also rose sharply to 4.0680 percent from 2.9850 percent.

The phenomenon comes as little surprise to money dealers, who had long predicted that the confluence of factors would conspire to produce another cash crunch by the end of January, following quickly on the heels of another one in December.

In addition to fundraising by institutional investors for cash to invest in upcoming new listings, traders blamed a tighter monetary stance by the central bank and increasing cash demand for funds during the Chinese new year holiday that will close financial markets in the first week of February.

While individual IPOs have attracted massive investor attention, with new listings enjoying large oversubscriptions, it has been negative for the wider market indexes. And the rise in rates appeared to add to equity investor concerns on Monday, with the primary indexes declining around 0.7 percent apiece, with a particular slump on the Shenzhen bourse where the NASDAQ-style ChiNext index sliding around 1.6 percent by mid-afternoon. (Additional reporting by Lu Jianxin and Shanghai Newsroom; Editing by Shri Navaratnam)

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