HK shares stall, China shares drop most in 5 weeks

Published: 21 Jul 2009 01:22:25 PST

* HK shares stall after hitting 10-mnth high at open

* China shares post biggest drop in five weeks

* CSCEC's mega IPO seen weighing on market

HONG KONG, July 21 - China-listed shares posted their biggest one-day drop in five weeks on Tuesday as the world's largest initial public offering so far this year took subscriptions while Hong Kong shares stalled at the 10-month high it scaled in the previous session.

China State Construction Engineering Corp (CSCEC), the world's largest initial public offering so far this year, is taking subscriptions on Tuesday and Wednesday. It set a higher than expected price late on Monday, aiming to raise as much as 50.16 billion yuan ($7.3 billion).

ASSET BUBBLE IN HONG KONG?

The benchmark Hang Seng Index was down 0.64 points at 19,501.73 after opening at 19,601.86, its highest level since September 2008, but Chinese insurers and technology stocks were lapped up on strong interim earnings prospects.

Turnover surged to a six-week high of HK$80.1 billion from HK$77.7 billion on Monday.

"The risks are higher now, with all the liquidity that has been pouring in from China and the U.S. there are worries an asset bubble is being created in Hong Kong. The 2,000 points gain on the main index in just a week is not healthy," said Patrick Shum, president at BMI Fund Management.

The main index has risen 35.6 percent so far this year, bouncing back to levels last seen at the time of the Lehman Brothers' debacle and is trading at 17.5 times its estimated earnings this year.

Shares in the world's largest wireless service provider China Mobile dropped 2.5 percent as the company added fewer new users in June amid competitive pressures.

China Mobile's net subscriber additions in June dropped slightly to 5.01 million from 5.11 million in May.

Increased competition in the sector since the industry overhaul in 2008 also weighed on China Mobile's smaller rivals, with China Unicom dropping 2.9 percent. But China Telecom which added a record number of users, since acquiring Unicom's CDMA business in 2008, in June gained 0.3 percent.

Meanwhile, Chinese PC maker Lenovo soared 6.7 percent to HK$3.36 after recent industry data showed the company had retained its leadership in the Asia ex-Japan market with an 18.5 percent market share in the second quarter.

Taiwan's Foxconn International Holdings which contract manufactures cell phones surged 8.7 percent to HK$5.75.

The China Enterprises Index, which represents top locally listed mainland Chinese stocks, was dowm 0.01 percent at 11,592.25

Chinese insurers extended gains after the industry regulator said on Monday mainland insurance companies may have doubled their earnings in the first half owing to higher investment income and lower funding costs.

China Life rose 2.9 percent while Ping An gained 3.7 percent. Boths stocks hit fresh 14-month highs earlier in the session. Non-life insurer PICC P&C gained 4.9 percent.

MEGA IPO ECLIPSES BROAD MARKET

Chinese stocks slid 1.64 percent on Tuesday, with metal and coal shares hit by profit-taking.

The Shanghai Composite Index ended at 3,213.206 points after edging to a fresh 13-month intraday high early in the session.

Losing Shanghai A shares outnumbered gainers by 729 to 210, while turnover for Shanghai A shares remained heavy at 231.6 billion yuan ($33.9 billion) against Monday's nearly 26-month high of 233.5 billion yuan.

"The (CSCEC) IPO may lead the index to shed 100 to 200 points, but the uptrend remains unchanged," said Zhou Lin, an analyst at Huatai China Securities in Nanjing.

Analysts worried that it may be just a matter of time before the market, up more than 75 percent this year, moves into a short-term corrective phase, while many institutions will be allocating funds to subscribe to the CSCEC offering given its heavy weighting in the index and an expected strong debut despite the high IPO price.

"Funds frozen for the CSCEC offering may reach about 1.6 trillion yuan," said Cao Xuefeng, an analyst at Western China Securities in Chengdu.

Metal and coal shares were hit by profit-taking after leading gains on Monday for a second session, with Aluminum Corp of China Ltd, China's top aluminium company, losing 3.20 percent to 16.04 yuan while China Shenhua Energy dropped 2.96 percent to 35.10 yuan.

Brokerage shares outperformed with CITIC Securities gaining 1.07 percent to 33.17 yuan, buoyed by this year's strong stock market rally and expected new business from the resumption of domestic IPOs and the imminent launch of a Nasdaq-style market for start-ups.

The official Securities Times said an estimated 50 to 100 Chinese firms would soon apply to float shares on the Growth Enterprise Board after Chinese regulators said on Monday they would begin accepting applications on July 26.

Shanghai Zhenhua Port Machinery, the world's largest port equipment maker, rose 4.03 percent to 13.16 yuan after saying it had won a supply contract worth $2.2 billion from Spanish firm Arborec Desarrollos Sociedad Anonima (Hong Kong).

Sinopec Corp climbed 2.01 percent to 12.16 yuan after saying that its domestic refined fuel sales fell 8.43 percent in the first half of 2009. Analysts said the decline would slow in the second half as the economy recovers.