SHANGHAI—China's stock markets fell after volatile trading Monday, as long-term reform-inspired optimism gave way to more imminent worries of oversupply following Beijing's decision to end a 13-month moratorium on new share offerings.
The benchmark Shanghai Composite Index closed 0.6% lower at 2207.37 after swinging between an intraday low of 2172.63 and high of 2231.92, taking its year-to-date loss to 2.7%.
"The news over the weekend is certainly a big negative for the market and the latter will likely stay under pressure in the short run," said Tangyue Yanglin, a senior investment adviser at Everbright Securities. 601788.SH -1.29%
The China Securities Regulatory Commission, in an effort to prop up the market, suspended listing approvals last November amid sustained doldrums in the country's share prices.
With the spigot looking set to be reopened, investors considered the impact that a glut of new shares might have on the market, with the downward bias more pronounced on the smaller Shenzhen Stock Exchange, where the Nasdaq NDAQ +0.95% -style startup board, ChiNext, plunged 8.3% to 1253.93.
"ChiNext stocks were hit the hardest because their valuations had been considered too high following a series of rallies earlier this year," said Ms. Tangyue, noting that most of the hundreds of companies awaiting approval are also smaller firms.
On Saturday, the securities regulator released guidelines for a revamp of the country's policy on initial public offerings, which it said could mean the IPO hiatus could end next month. At last count, more than 760 firms were in line for listing.
Heard on the Street
In mid-November, China's top leaders promised, in a blueprint for economic and social policies over the next decade, that they would push for reforms of the stock-issuance system while promoting fundraising activities in the equity market through a variety of channels.
The move to market-oriented registration marks a significant easing of government control over China's IPO market, which channeled 488 billion yuan ($80 billion) to issuers in 2010.
In the past, it could take years for a nongovernment company to complete the registration process, as the regulator considered such matters as whether the candidate would be able to sustain profits. Meanwhile, the regulator came under criticism for giving preferential treatment to the country's large but poorly managed state-owned companies, allowing them to jump the queue and float shares within a few months.
Despite short-term pain, "IPO reform is a major market-boosting factor in the long run, because it puts the market back on the right track by restoring its function of fundraising and injecting vitality," said Yang Ling, president of Beijing StarRock Investment Management Co., which has 4 billion yuan in assets under management in China.
As the decision to end the IPO moratorium came shortly after the key Communist Party meeting last month, "it reinforced the perception that capital-market reforms have entered the fast track," Ms. Yang said.
For some firms, the reopening of the IPO floodgates and the increased role that underwriters will play in deals in the long term made the brokerages among few bright spots in the market.
Citic Securities 600030.SH -2.60% finished the day 5.1% higher at 13.56 yuan, while Haitong Securities 600837.SH -3.79% gained 5.5% to close at 12.41 yuan.
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