Shares in mainland China fell more than 5 per cent on Wednesday, the biggest one-day drop in more than four years, as investors sold bank stocks ahead of expected new listings and took profits after a strong recent rally.

Investors absorbed the announcement on Tuesday that Bank of China, the country’s second largest lender, plans to raise up to Rmb20bn from a listing on the Shanghai stock exchange later this year in what could be the first of several fund-raisings by banks and other large companies.

The Shanghai composite index, which had previously showed itself immune to the recent turmoil on international stock exchanges, ended the day 5.3 per cent lower at 1,589.6 points.

Regulators closed the market to new listings last year while they introduced a plan to make most of the shares in listed companies trade­able on stock exchanges.

The announcement last month that initial public offerings would restart has prompted divergent views on how the market will respond. Analysts have warned that a deluge of new issues could pull down share prices and some said yesterday that the market might have further to fall because of the eagerness of so many companies to raise money.

However, others believe the listing of high-class companies in Shanghai will attract retail investors back to the market, especially as they have few other outlets for their savings. After a pause while investors take profits, some analysts say the market could rally again.

BoC announced its plans for a Shanghai listing only a week after it launched an IPO in Hong Kong. Industrial and Commercial Bank, which is planning a Hong Kong listing, and China Construction Bank are both considering a mainland flotation. Investors on Wednesday sold shares in smaller Chinese banks, such as China Merchants and Minsheng Banking Corporation, ahead of the BoC listing.

Tang Xiaosheng, analyst from Guosen Securities in Shanghai, said that as well as responding to the news of the BoC move, the market dropped on Wednesday because it “was digesting the previous rally”. But he added: “There is no reason for the market to dip much more.”

However, according to Peng Yunliang, analyst of Shanghai Securities: “The market is getting a little worried that more big companies will list in the mainland at a rapid rate.”

On Monday, CAMC Engineering became the first group to begin the flotation process since the government ban was lifted.

Get alerts on IPOs when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article