Drawing lessons from its 2001 failed attempt to unload state-owned shares, China aimed for an incremental sell-down this time, but the same worries of a supply glut still spooked investors, driving the Shanghai composite index to six-year lows on May 9. Some analysts said the market could retreat further, but others like Vincent Chan, head of China equities research at Credit Suisse First Boston, complained that investors have become too "fixated" on the reform. "It's overdone,? he said.
Chan said his one disappointment is that the State's pilot run of the sell-down did not adequately represent China's stock universe, since it excluded large caps. China chose four smaller, mid-size companies to launch the sell-off: Sany, a machinery maker, Shanghai Zijiang Enterprise Group, a packaging company, computer-services provider Tsinghua Tongfang and Hebei Jinnui Energy Resources.
The market did see one bright spot in late April though. Baoshan Iron & Steel held its record US$3bn secondary stock offering, with five billion shares sold for near the top of the pricing range at RMB5.12 each. But the new shares and the impending flotation of government shares have investors worried about the market's liquidity.
"The demand for equities is weak and there's an oversupply," says a CITIC Securities analyst who declined to be identified. To mitigate these concerns, securities regulators reportedly deferred IPO approvals, which may delay offerings by CSR Sifang Locomotive, Rolling Stock Co Ltd, Bank of Communications and Shenhua Energy, China's largest coal miner, these last two having planned dual IPOs in Shanghai and Hong Kong. At last report, both were expected to proceed with their Hong Kong listing plans.