Chinese stocks fell on Wednesday morning as a dozen initial public offerings hit a market already pulled down by bank heavyweights on signs of accelerated interest rate liberalisation that threatens their margins.

The CSI300 index fell 1.2 per cent to 5,098.63 points, while the Shanghai Composite Index lost 1.0 per cent to 4,860.58 points. Hong Kong stocks were mixed.

Banking shares sagged, after China launched certificates of deposit (CDs), paving the way for full interest rate liberalisation.

“While this is clearly a good step, it is adding some short-term pressure on the share price of banks as they will have to compete to attract deposits,’’ wrote Gerry Alfonso, director of Shenwan Hongyuan Securities.

IPO subscriptions

The market already faces pressure from this week’s big batch of IPOs, which some estimate could lock up more than 8 trillion yuan ($1.29 trillion) of cash.

One day after 11 IPOs were launched, 12 companies started taking subscriptions on Wednesday. This prodded some investors to take profits after last two sessions’ rally.

Services sector PMI

Investors drew little solace from Wednesday’s HSBC/Markit Purchasing Managers’ Index (PMI) survey, which showed activity in China’s services sector accelerated in May.

Economists say China’s economic growth pace, already at its slowest in decades, will get worse before it gets better, as time is needed for liberalising reforms to bear fruit.

Underscoring widely diverging views on where the market will go after more than doubling over the past 12 months, there was a net outflow of 127 billion yuan from investors’ stock accounts last week, according to the latest data.

But foreign interest in the world-beating market remains keen.

Vanguard Group had said on Tuesday it plans to add mainland-traded A-shares to its broad emerging markets exchange-traded fund, making it the first broad-based emerging markets ETF to gain direct exposure to China's onshore market.

Also, Bank of America Merrill Lynch said investors worldwide poured $4.5 billion into funds that specialise in Chinese stocks in the week ended May 27, the biggest weekly inflows into the funds since April 2008.

Highlighting the attractiveness of China’s stock market, Chinese display advertising company Focus Media, which delisted from Nasdaq in 2013, will conduct a 45.7 billion yuan asset swap with China’s Jiangsu Hongda New Material Co Ltd in a backdoor listing, Hongda had said late on Tuesday.

On Wednesday, most sectors in China slipped, with transportation and IT stocks leading the decline.

In Hong Kong, the Hang Seng index rose 0.7 per cent to 27,670.71 points and the Hong Kong China Enterprises Index fell 0.5 per cent to 14,124.70.

Financials and utilities stocks were down, but energy and telecom stocks rose.

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