Biggest IPO debut fuels China bubble concern

The stronger-than-expected debut for China State Construction Engineering Corps 7.3 billion IPO showed Chinas booming markets....

The stronger-than-expected debut for China State Construction Engineering Corps 7.3 billion IPO showed Chinas booming markets are drawing investors,but it heightened concerns about a speculative stock market bubble forming.

The IPO,the worlds largest in a year,surged 56 per cent in its Shanghai debut on Wednesday,while building materials group BBMG Corp enjoyed the strongest listing in Hong Kong this year as ample investor funds chased exposure to Beijings infrastructure stimulus spending.

Despite the strong debut,the mainlands benchmark Shanghai Composite Index fell 5 percent in its biggest one-day drop this year,after a 90 per cent year-to-date surge that had prompted Beijing to reopen its IPO pipeline last month.

The rally has been fuelled by a surge in lending from state-linked banks aimed at helping the economy recover. Beijing has also committed to spending around 585 billion on stimulus measures,much of it focused on building and infrastructure.

Stir-frying speculation has gone too far, said Zhang Qi,senior stock analyst at Haitong Securities in Shanghai. Late on Wednesday,investor sentiment turned sour as many believe too much speculation may spark regulatory intervention.

But Zhang,several other analysts and fund managers believed that Beijing would only use market-oriented means,such as pushing more supplies of new shares onto the market,to cool the market in the near term. The authorities typically resort to administrative steps,such as a hike in stock trading duties,only when they truly believe the market is overheated. This is considered unlikely now,as the market is still considered to be recovering from a slump last year with the Shanghai index only half its record peak of late 2007.

The listing for CSCEC,Chinas biggest homebuilder,follows Mondays spectacular Shanghai debut of Sichuan Expressway,which tripled on its first day8217;s trading. It creates an index heavyweight that is the Shanghai market8217;s biggest construction and property stock.

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The debuts bode well for a series of listings lining up on the mainland since China lifted an unannounced 10-month IPO ban last month,including Everbright Securities,which this week began book-building for a 1.5 billion IPO next week.

Other big names include the countrys top tourist agency,China International Travel Service Corp,and its biggest ship builder,China Shipbuilding Industry Co,whose IPOs were approved by the China Securities Regulatory Commission over the past two weeks and are likely to be launched next month.