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First China IPO Flop Since 2012 Shows Market Confidence Breaking

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First China IPO Flop Since 2012 Shows Market Confidence Breaking

(Bloomberg) -- A Chinese stock closed below its listing price on debut for the first time in seven years, showing how weak investor sentiment has become.

Luoyang Jianlong Micro-Nano New Materials Co. fell 2.2% on Shanghai’s Star board Wednesday, the first mainland listing to flop on opening day since Haixin Foods Co. plunged 8% in October 2012, according to data compiled by Bloomberg.

The chemical product maker’s listing comes amid a flurry of initial public offerings that have faded quickly. Trading activity in China is slowing and there has been a steady decline in new stock accounts, signaling increasing pessimism in China’s stock market.

“Luoyang Jianlong’s debut flop sends a clear signal to the market that buying into IPOs has become more and more risky,” said Jiang Liangqing, a money manager at Ruisen Capital Management in Beijing.

“It will become more difficult for companies to raise money from the capital market as the deteriorating performances of new listings will deter investors,” he said. “On the other hand, it shows that things are becoming increasingly market-driven.”

A recent run of faltering listings comes at an awkward time for China, which is beefing up efforts to mitigate funding challenges faced by local firms by widening access to equity financing. Beijing has made it a priority to ensure the country’s capital markets play a bigger role in bolstering economic growth, which has slowed to its weakest rate in almost three decades amid a trade war with the U.S.

China in recent days moved to calm market concerns about a flood of equity issuance. State media reported Sunday and Monday that the securities regulator will approve future proposed IPOs at a “steady” pace. On Tuesday, a front-page commentary by the China Securities Journal cited brokers as saying stock-market liquidity would be sufficient next year.

For years, stock debuts in China were a slam-dunk trade after the regulator in 2014 imposed an unwritten valuation cap on IPOs, which saw new listings pop 44% on their first trading day. The guidelines were drawn up after a run of flops resulted in a temporary suspension of new listings.

A repeat of that suspension scenario is currently unlikely, said Ruisen Capital’s Jiang, given Beijing’s drive to have the capital market play a larger role in corporate financing.

Large-cap IPOs are also showing signs of diminishing interest. Last week, Postal Savings Bank of China Co. -- the nation’s biggest stock listing since 2010 -- drew the lowest demand from retail investors in almost half a decade. Underwriters were then left holding unsold stock.

Two other companies listed Wednesday posted better debuts. Primeton Information Technologies Inc. rose 61% on the Star board, while Hiecise Precision Equipment Co. advanced the 44% maximum on the ChiNext board.

(Adds background on Chinese IPOs from sixth paragraph)

--With assistance from Matt Turner.

To contact Bloomberg News staff for this story: Ken Wang in Beijing at ywang1690@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Kevin Kingsbury

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