Shanghai shares extended losses to hit a 14-month low on Tuesday, dragging Hong Kong stocks down, as investors pulled funds from the market to prepare for a major IPO by Agricultural Bank of China.
The Shanghai Composite fell 3.3%, slipping under the May troughs near 2,480 that analysts had said was a near-term support level. The index was on course for an about 20% decline over the quarter, its worst quarterly performance since December 2008, as euro zone debt woes and policy tightening in China spurred a selloff.
Hong Kong's Hang Seng index fell 1.1% by the midday close and was expected to sink further at the reopen, tracking weakness in mainland shares.
The China Enterprises Index fell 1.5% with only two of 40 stocks not trading in the red as of midday.
China's stock market remains one of the world's worst performers this year, down 24% after the authorities unleashed policies to ease speculation in the red-hot property sector.
The expiry of June futures contracts in Hong Kong and quarter-end changes to "dress up" fund portfolios were adding to volatility on the day, Mark To, head of research at Wing Fung Financial Group said.
AGBANK WEIGHS
Analysts said AgBank's price-to-book ratio was lower than other banks, encouraging some institutions to sell other bank shares to raise cash to participate in the initial public offering, indicating how scarce funding has become in the mainland market.
AgBank said it had set the price range for the Shanghai portion of its initial public offering at 2.52 yuan to 2.68 yuan ($0.37-$0.39) per share, placing the ceiling well below the top of the range of the Hong Kong portion.
Low pricing could help the market absorb the massive listing, some analysts said, with the Shanghai portion alone worth up to nearly 60 bln yuan ($8.83 bln).
"But the market is still facing financing pressures and we are still worried about the domestic economy," said Zheng Weigang, analyst at Shanghai Securities.
China's economic growth has shown signs that it will slow in the second half of this year although it remains robust, while uncertainty hangs over the policy outlook, especially in the property sector.
All 14 of the heavily weighted banking stocks listed on the Shanghai and Shenzhen markets fell, with Merchants Bank down 1.6%, Minsheng Bank falling 2.1% and heavyweight ICBC off 1.6%.
