Shanghai shares extended losses, dragging the Hong Kong market lower. Bank shares are under pressure with a glut of new share issues this week, including Agricultural Bank of China’s mammoth listing, added to liquidity woes. China’s key stock index, the Shanghai Composite Index, was down 1.6 percent by midday Monday at a 15-month intraday low.

Shanghai’s stock market, weighed down by a recent squeeze in money markets, is facing nine initial public offerings this week, while Bank of China the mainland’s No.4 lender, announced a rights issue of $8.8 billion over the weekend. The Shanghai Composite Index ended the morning at 2,344.2 points, after closing up 0.4 percent on Friday. China’s stock market is one of the world’s worst performers, second only to Greece, and is down 28 percent this year.

“The nine share issuances this week including AgBank are putting a lot of pressure on the market,” said Guo Yanling at Shanghai Securities. “The market’s downward trend suggests the authorities will act to slow down the speed of new listings.” Guo added that while investors see China’s economy as stable, they remain cautious that Chinese authorities will face difficulties in achieving strong economic growth. Chinese Premier Wen Jiabao on Sunday pledged to keep macroeconomic policy stable but warned of the difficulties of controlling the economy.

Banks were among the most active stocks, with Minsheng Bank, the second-most active, down 1.2 percent. Industrial and Commercial Bank of China, the third-most active, fell 0.7 percent, and Bank of Communications fell 2.2 percent.

A weak mainland market dragged Hong Kong shares lower with the benchmark Hang Seng Index off 0.23 percent at 19,859.94, and the China Enterprises Index down 0.55 percent at 11,185.15. However, signs were emerging that the markets could be on the cusp of a bounce as foreign investors start seeing value in Chinese shares.

“Overall, the market is not taking the new issuances lightly but there is clear evidence that foreigners are accumulating Chinese shares,” Todd Martin, Asia equity strategist at Societe Generale said. The China Enterprises Index, an index of top Hong Kong-listed mainland companies, has outperformed the Shanghai Composite as well as the Ishares A-shares tracker since the start of the year by 20 and 14 percent respectively, suggesting foreigners are becoming keen on playing China via H-shares.

With H-share valuations still near multi-month lows, valuations were looking attractive even if earnings forecasts were cut as many market players expected, Martin said. The China Enterprises Index is trading at 11.2 times forward 12-month earnings, slightly above the lows seen in May, but still close to the lowest since March 2009.

Banks shares were weak, with Bank of China down 1.8 percent, the top loser amongst the heavily weighted financial shares after news of its rights offering. Telecoms plays rose led by China Unicom, up 1.7 percent. Turnover on the Hong Kong stock exchange stayed low with investors on the sidelines ahead of public holiday in U.S. markets.
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