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Investors losing interest in China

Investors are showing signs of losing interest in Chinese stocks, just as investment banks are preparing a long list of Chinese initial public offerings. That combination could make it hard to sell all the shares coming to market and could slow China's efforts to privatize its state-owned industries.

Delays in Chinese initial public offerings could also set back big banks like Citigroup, Deutsche Bank, Goldman Sachs, HSBC, Merrill Lynch, Morgan Stanley and UBS. China has become the world's second-largest generator of investment-banking fees for such offerings, ahead of Europe but behind the US. All these banks have been successful lately in winning the right to sponsor such offerings, most of them done in Hong Kong.

The world's largest initial public offering so far this year, the China Shenhua Energy Co (中國神華能源), a big coal-mining concern seeking to raise US$3.6 billion, attracted lukewarm demand from institutional and retail investors as bidding closed Tuesday, with lower oversubscription rates than seen on big China issues last year. It was expected to be priced toward the low end of expectations late Tuesday night in New York.

Earlier Tuesday, the China Minsheng Banking Corp (中國民生銀行), the largest bank in China organized by private investors, unexpectedly canceled meetings in Hong Kong to promote its US$800 million offering to investors. The stock sale was previously planned for early next month.

Even money managers at funds specializing in China stocks are expressing worry about a glut of offerings.

"I really think it's too much, particularly given that the market is not performing that well," said Romeo Dator, the portfolio manager of the US Global China Region Opportunity Fund in San Antonio. "We're not planning to participate in any of these."

Some money managers see a broad decline in enthusiasm for China. Wary of trade disputes with the US and of possible Chinese-interest rate increases, and weary of stagnant prices in Hong Kong and eight-year lows on the Shanghai stock market, investors are steering more money toward India and other emerging markets.

"By and large, the fascination with China has waned" in the last several months, said Choo Yoon-lai, the portfolio manager of the Comgest Growth Greater China Fund.
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