Page last updated at 10:17 GMT, Wednesday, 29 July 2009 11:17 UK

China stocks fall on bubble fears

Man standing in front of share information board in Shangha last week
Analysts say investors feared the market may have been overheating

China's main stock index has posted its biggest one-day decline this year, after one firm's successful share issue raised fears of market overheating.

The Shanghai Composite Index fell 5% on Wednesday as shares in China State Construction Engineering Corporation (CSCEC) ended up 56% on their debut.

Analysts said the wider sell-off was caused by investor concern that CSCEC's shares were now overpriced.

They said CSCEC's surge was led by too much money chasing Chinese stocks.


Analyst Wang Mingzhi of GF Securities said CSCEC's closing price of 6.53 yuan was above its "fair value" of five yuan.

People walking past housing development in Beijing
CSCEC has benefited from a recent recovery in house prices

"The jump is obviously driven by speculative funds," he said. "It's hard to find a rational explanation."

Fellow analyst, Mao Nan of Orient Securities added that "with lots of cash at home, and capital flowing in from abroad, the main problem of the market is excessive liquidity".

Share declines were also seen in Hong Kong, where the main Hang Seng index lost 2.4%.

The debut trading of state-run CSCEC came a week after it sold a 40% stake in the business for 50.2bn yuan ($7.3bn; £4.5bn).

The successful sale was the world's biggest share issue so far this year.

CSCEC, China's biggest housebuilder, has said it will use the proceeds of the sale to expand its business.

Chinese house prices rose in June for the first time in seven months.

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