Chinese stocks fell for the first time in four days on Tuesday on news that China Construction Bank was likely soon to launch one of the country's biggest initial public offers of shares. The securities regulator said late on Monday it would review on Friday the bank's plan to issue up to 9 billion A shares in a domestic IPO that is expected to raise at least $6 billion.
IPOs are typically launched around two weeks after approval. The offer is likely to be China's biggest or second-biggest IPO, and be followed in subsequent months by a string of other big equity offers. Although the bullish market, which is awash in money from new mutual funds, is expected to be able to absorb the offers, the prospect of the heavy cash calls deterred buying on Tuesday - especially with the index already up 19 percent since the start of last month.
The Shanghai Composite Index hit an all-time, intra-day high of 5,357.926 points in the early afternoon but closed down 0.51 percent at 5,294.045. Losing Shanghai stocks outnumbered gainers by 566 to 290, while turnover in Shanghai A shares was a heavy 185.3 billion yuan ($24.5 billion), just below Monday's nine-week high.
The announcement on Construction Bank's IPO "had a psychological effect, and in addition money is expected to start flowing to the Hong Kong market in September", said Zhang Yanbing, analyst at Zheshang Securities. Last month, China said it would let residents buy overseas securities directly, and in anticipation of substantial flows of individual investor funds into Hong Kong's H shares, institutions have stepped up buying of stocks there.
Highly valued financial sector A shares, which could suffer the most as attention shifts to much cheaper H shares in dual-listed firms, were among the biggest losers on Tuesday, especially insurers.
China Life Insurance sank 3.64 percent to 54.04 yuan, after stalling for the previous four days despite the overall market's gains. China Eastern rose its 10 percent daily limit for the second straight day to 11.62 yuan, and traders expect it to keep climbing to at least 14 yuan and possibly near 20 yuan.