China's intention to resume new share sales may slow market gains in the short term but analysts said the macro economy is the key factor that will determine the market trend.

"The market is very likely to enter a short-term fluctuation due to the resumption of initial public offerings, but for the long term, the liquidity in the market is still adequate and the domestic economy will improve," said Li Bin, an analyst at Guolian Securities Co.

China has unveiled a 4 trillion yuan (US$586 billion) stimulus package to boost domestic demand and provided support to 10 key industries as the country aims for its gross domestic product to grow 8 percent this year.

The stock market has rallied 46 percent so far this year.

From now to June 5, the China Securities Regulatory Commission announced on Friday that it will solicit public opinion on a listing reform, including a pricing mechanism which favors minority investors who buy into initial public offerings.

"After we finish collecting opinion and settling the rules, we will resume new share sales immediately," said the CSRC, which froze all IPOs on the mainland in September over concerns of a stock glut.

A total of 33 firms, including China State Construction Engineering Co Ltd, Everbright Securities Co and China Merchants Securities Co, have got approval from the CSRC for their IPOs and they are expected to raise more than 70 billion yuan.

"The new share sales will soak up liquidity from the market and challenge the benchmark index in the short term, but experience has shown that the resumption of IPOs won't change the middle and long-term trend," said Huang Changzhong, an analyst at Minsheng Securities Co.

The CSRC has suspended new share sales six times since 1994. The Shanghai Composite Index gained within a month after five resumptions.

"The resumption of IPOs on the main board is faster than expected because investors assumed the resumption will happen after the launch of a growth enterprise market in August," said Huang. The CSRC will launch a Nasdaq-modeled GEM as early as August to finance start-ups with high growth potential.

"A short-term adjustment is unavoidable,'' said an individual investor who preferred to be called Lu. But he said he is "confident about the middle and long-term performance" of the market. So confident is he that he is willing to allocate 80 percent of his total portfolio to stocks and "invest more in new energy and real estate stocks." Lu expects the Shanghai Composite Index will reach 3,400 points this year.

The index fell as much as 2.27 percent in yesterday's trading but eventually closed higher at 2,610.01 points for a rise of 0.48 percent.

Under the new pricing mechanism proposal, institutional investors would not take part in the retail tranche of an IPO, which may help individuals to get shares.

In China, the new stock sale process is divided into "offline" and "online" subscriptions. Under the old regulations, institutional investors bid for a tranche of the IPO and fix the stock sale price during the offline subscription period.

These cash-rich institutions were also allowed to subscribe online just like individuals, making it extremely difficult for retail investors to get their hands on the shares.

Under the latest proposal, institutions that have already taken part in the offline subscriptions won't be allowed to compete with retail investors in the online subscriptions.

(Shanghai Daily May 26, 2009)