Beijing listing talk hits red chips
Red chips have seen their share of trouble in recent weeks, as investors lose patience with the lack of acquisition-driven growth the sector seemed to promise.
After weeks of no new asset injections, either real or rumoured, any bad news has been seized on as a reason to sell, and yesterday's sharp fall was no exception.
The trigger was a rumour that Beijing Enterprises would soon have a sister, competing for the attention of the company's ultimate parent, the Beijing city government.
Rumours that Beijing would seek to list another vehicle, possibly as an H share, fed into anxieties already plaguing the red-chip market.
Beijing Enterprises lost 13.2 per cent on the rumours, putting the shares at $35.50 - the lowest close the stock has seen since it was listed in May.
The red-chip index, which does not include Beijing Enterprises, fell 6.21 per cent.
Strong retail interest for China Telecom, the latest red-chip offering, might also be sucking liquidity out of the sector, brokers said.
Hardest hit were shares trading at a high premium to their net asset value, such as Shanghai Industrial and China Merchants, DBS Securities research director Percy Au-young said.
Investors had been willing to pay an 'injection premium' on these companies, pricing in the likelihood of future acquisitions, but patience is wearing thin.
Credit Suisse First Boston strategist Nitin Parekh said: 'The criteria for assessing red chips are changing.' Expectations for future growth are falling with the market.
Investors are concerned that H shares will receive better treatment from the government, which is why rumours like those surrounding Beijing Enterprises can be so damaging to sentiment.
Mr Au-young said: 'There are worries that state policy favours H-share listings. That does not bode well for asset injections.'