China Down 2% as New IPO Rules Arise

Steve Kanaval |

China shares traded 2.6% lower overnight for the biggest loss since the August sell off. The drivers for this are the declining industrial profits and a looming revamp of the nation's initial public offering system. This gave investors little reason for optimism as China's top legislature on Sunday approved an IPO reform proposal, which could see the country move toward a U.S.-style registration-system, potentially boosting supply of equities. It makes sense this is pressuring shares as this potential over supply makes current shares vulnerable. Sentiment was also soured by a slump in so-called B shares (stocks traded in Shanghai and Shenzhen but denominated in hard currencies) and a major investigation into China Telecom's (NYSE:CHA) Chairman Chang Xiaobing.

Meanwhile, Chinese lawmakers will allow all couples to have two children beginning Jan. 1, 2016, after finalizing a new birth policy aimed at mitigating a potential demographic crisis. For the past decade, experts have warned that falling birthrates in the nation may cause a labor shortage that could endanger already slowing economic growth. Shares of children-related companies surged following news of the policy change in October. The country's population currently stands at 1.37B.

The China-led Asian Infrastructure Investment Bank was formally established on Friday and is expected to be operational early next year. Despite opposition from Washington, major U.S. allies such as Australia, Britain, Germany, France and Italy have all joined the institution. The bank, which will initially focus on financing projects in power, transportation, and urban infrastructure, will hold its opening ceremony in mid-January and formally elect a president.

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