The strong market response to Aluminum Corp of China's (Chalco) share placement will probably serve as a powerful magnet for other companies to follow suit, but given the abundance of liquidity these too are unlikely to derail the bullish sentiment, analysts say. 'You have these placements in every bull market, and when you look back prices usually went higher [afterwards],' South China Brokerage vice-chairman Howard Gorges said, shrugging off the usual concern that once placements start to appear it means the market is near its peak. News that Chalco was issuing $3.11 billion in new shares in the largest H-share placement did put pressure on other H shares, although, dealers said, the share issue was seen mainly as a way to take profits on the massive gains accumulated in recent months. The real response came yesterday when Chalco, resuming trading after a one-day suspension, shrugged off a pre-market drop to $5.85 and rallied to an intraday high of $6.70. It then retreated to finish the day at a record high of $6.35, well above the placement price of $5.658. Capital Securities research head Philip Chan said a key reason for the strong share price performance was a requirement for H-share companies to have a clear business plan for how to use the money they were raising, including an expected return on capital. Because the shares were new, investors were also not allowed to sell them right away, which helped limit the immediate profit taking, he added. Tung Tai Securities research manager Kenny Tang said: 'The funds will be used to enhance the company's production capacity of alumina and since there is a global shortage of alumina, this should quickly translate into higher profits that will offset the dilution.' As long as the market saw such a relationship between the new issues and enhanced returns, it should easily accept more placements, analysts said, noting that funds continued to flow into the Hong Kong market, as seen by the heavy turnover, and demand for H shares remained strong. Because H shares were seen as the most probable candidates for placements, given their massive share price gains in the past year, the reason for most placements in the pipeline should be new investments or acquisitions rather than debt reductions, Mr Chan said. The market is speculating that China Mobile, PetroChina and Yanzhou Coal are eyeing placements in the near term.
