Chinese main stock index tumbled more than 2 percent on Wednesday as investors worried that the market could be dampened by large supplies of new shares in coming months. Oil giant PetroChina said on Wednesday that it planned an initial public offer in Shanghai, which could raise as much as $5.7 billion.
Several similar IPO plans are being prepared by some of China's biggest companies. In addition, under rules for the reform of state ownership of listed companies, big state shareholders will gradually be allowed in the second half of 2007 to sell larger holdings in those companies as two-year lock-up periods expire.
Sany Heavy Industry Co, one of the first companies to launch the reform in mid-2005 and therefore one of the first to see the lock-up period expire, tumbled 3.78 percent to 40.98 yuan on Wednesday. "As the supply of shares is increasing, the market will probably experience a pull-back - authorities' policy toward the market will determine the extent of the correction," said Zhang Qi, analyst at Haitong Securities.
The Shanghai Composite Index, which had risen 0.68 percent in the morning to just below May's all-time high of 4,335 points, ended the day down 2.07 percent at 4,181.323, off an intraday low of 4,164.274. Falling Shanghai stocks outnumbered gainers by 695 to 166, while turnover in Shanghai A shares was an active 190.2 billion yuan ($25.0 billion), up from 178.1 billion yuan on Tuesday.
Given large sums of new money still entering the market from mutual funds and individual investors, most analysts do not expect new supply of shares to trigger an extended downtrend, and they still see a good chance of further rises in coming months.
Banks were generally weak, with Pudong Development Bank sinking 4.49 percent to 35.31 yuan after Reuters quoted industry sources as saying its president would be replaced by a former senior regulator from Beijing.
But Shenzhen Development Bank soared 25.06 percent to 31.19 yuan after being suspended since June 1 while shareholders passed a plan to reform its state shareholding structure. Fund-raising by the bank had been delayed for many months by the lack of a reform plan, so its passage cleared the way for long-term growth.