Chinese regulators announced rules that could slow the often meteoric rises in share prices after initial public offerings of stock, a move that added to the frustration of investors hoping Beijing will rescue the ailing market.
The Shanghai and Shenzhen stock exchanges said in separate announcements on Friday and Thursday, respectively, that investors who own stock in companies ahead of a listing will be permitted to sell their shares one year after an IPO, slashing the previous lockup period from three years.
Analysts said the impact of reducing such lockup periods could be to reduce demand from first-day investors by signaling that more of a newly listed stock could flow onto the market sooner, which could dilute share prices.
China's Shanghai Composite Index shed 3.3% on Friday after the announcements to end at 2202.45, leaving it down 58% so far this year and 64% lower than a record last October.
Investors are desperate for Beijing to stabilize the market but have been continually disappointed by a raft of policies in recent months that address long-term concerns but have little immediate positive impact on the market. 'The new regulation is not the positive news the public expects,' said Zhang Gang, a Shanghai-based analyst at Central China Securities.
Indeed, the new policy is a reminder that lockup periods for Chinese stocks continue to expire in ways that could flood the market with stock. For years, nearly three-quarters of the equity in China's listed companies was legally barred from trading. In 2005, the government initiated a policy to gradually transform that equity into tradable stock, which now is being sold steadily into the public market.
In a possible bid to stem that selling, the regulator also said Friday that companies in need of cash can issue bonds that are convertible into shares instead.
China's individual investors long put faith in the ruling Communist Party's desire to see the stock market remain strong until the Beijing Olympic Games were held. But prices fell steadily right through last month's Games, as little evidence emerged to suggest Beijing would provide the expected support.
The IPO rules could help encourage venture-capital firms to invest in Chinese companies, because the firms will have the opportunity to exit such investments more quickly.
The latest rules may have their roots in PetroChina Co.'s listing last year on the Shanghai Stock Exchange, which briefly appeared to mark the modernization of China's markets but quickly came to be seen as a disaster. PetroChina's share price jumped 163% on its debut last October and briefly made PetroChina the world's most valuable company at more than $1 trillion based on the value of its Shanghai stock.
But because of lockup periods only 2.2% of the firm's share capital was available for trading the first session, boosting demand. The stock, which remains China's biggest, fell 4.2% to 11.94 yuan ($1.75) Friday, well below the IPO price of 16.70 yuan.
James T. Areddy
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