The stronger-than-expected debut for China State Construction Engineering Corp’s $7.3 billion IPO showed China’s booming markets are drawing investors, but it heightened concerns about a speculative stock market bubble forming.
The IPO, the world’s largest in a year, surged 56 per cent in its Shanghai debut on Wednesday, while building materials group BBMG Corp enjoyed the strongest listing in Hong Kong this year.
Despite the strong debut, Shanghai Composite Index fell 5 per cent in its biggest one-day drop this year, after a 90 per cent year-to-date surge that had prompted Beijing to reopen its IPO pipeline last month.
The rally has been fuelled by a surge in lending from state-linked banks aimed at helping the economy recover. Beijing has also committed to spending around $585 billion on stimulus measures, on building and infrastructure.
“Stir-frying (speculation) has gone too far,” said Zhang Qi, senior stock analyst at Haitong Securities in Shanghai.
“Late on Wednesday, investor sentiment turned sour as many believe too much speculation may spark regulatory intervention.”
But Zhang, several other analysts and fund managers believed that Beijing would only use market-oriented means, to cool the market in the near term.
The authorities typically resort to administrative steps, such as a hike in stock trading duties, only when they truly believe the market is overheated. This is considered unlikely now, as the market is still considered to be recovering from a slump last year with the Shanghai index only half its record peak of late 2007.
The listing for CSCEC, China's biggest homebuilder, follows Monday's spectacular Shanghai debut of Sichuan Expressway, which tripled on its first day's trading. It creates an index heavyweight that is the Shanghai market's biggest construction and property stock.