Chinese main stock index tumbled more than 5 percent on Wednesday, ending a four-day rebound off 11-month lows, as large caps were sold after the market retreated from technical resistance.
Market liquidity was hit by money flowing to initial public offers of shares, analysts said. Retail subscriptions to Jinduicheng Molybdenum's offer were being taken on Wednesday, and investors were starting to prepare funds for subscriptions to Zijin Mining Group's offer next Tuesday and Wednesday.
After a near-halt to IPO activity in March, regulators have allowed significant activity to resume this month, apparently judging that the market had regained enough strength to absorb the offers. "The market is like a rotten tree - it's hard for it to stay standing for any length of time. People are really puzzled about when the index will establish a real bottom," said Li Shiming, analyst at Galaxy Securities.
The Shanghai Composite Index, which ended the morning down 1.50 percent, closed the day 5.50 percent lower at 3,413.907 points, posting its biggest daily drop since late January. It is down 44 percent from last October's record high.
The index's rebound began losing steam on Tuesday when it pulled back from near resistance on its 20-day average, now at 3,646 points. The biggest stock, PetroChina, sank 4.84 percent to 17.32 yuan on Wednesday. The stock bounced twice in recent days from last year's IPO price of 16.70 yuan, amid what some traders believe was a deliberate effort by some institutions to support that level and prevent investors from panicking.
Losing Shanghai stocks far outnumbered gainers by 828 to 76 on Wednesday, with over 60 shares plunging their 10 percent daily limits. Turnover in Shanghai A shares shrank to 80.9 billion yuan ($11.6 billion) from Tuesday's two-week high of 92.4 billion.
After the index rebounded from last week's intra-day low of 3,271 points, many fund managers said the market might have found at least a medium-term bottom, after its long slide cut valuations of stocks sharply. But the average premium of domestically listed A shares to Hong Kong-listed H shares in Chinese companies remains large at 46 percent, implying valuations could still stifle any extended recovery of the A-share market.
In addition to the 20-day average, the Shanghai index faces major technical resistance on its downtrend line from mid-January, now at 3,730 points, and a break of this would be needed to confirm medium-term downward pressure had faded. An important indicator of sentiment toward blue chips, the China SSE 50 Exchange-Traded Fund, dropped 4.63 percent to 2.84 yuan on Wednesday.
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