The mainland stock market jumped 4.15 percent yesterday with investors expecting more market-friendly moves from the government following the release of block trading rules on Sunday.
The reduction of stamp tax on share trading from 0.3 percent to 0.1 percent was announced after the market closed yesterday.
The benchmark Shanghai Composite Index rose 130.54 points to close at 3278.33, with 840 out of 913 stocks closing higher. The Shenzhen Component Index surged 5.45 percent, or 609.38 points to close at 11784.15.
Turnover on the two bourses amounted to 11.93 billion yuan ($1.72 billion), up 38.5 percent from Tuesday. Total capitalization swelled 4.26 percent to 21.03 trillion yuan ($3 trillion).
"Investors expect the government to announce more measures to revive market sentiment," said Zhu Haibin, an analyst at Essence Securities.
In addition, the sliding valuation of stocks also began to attract bargain hunters, analysts said.
Yan Ji, investment director at Jintrust Fund Management, said that the average price/earnings to growth (PEG) of A shares is now below 1, regarded by analysts as a reasonable level.
The current PEG is 0.66, calculated on the basis of the current 2008 average PE ratio of around 20 times and the projected 30 percent corporate earnings growth this year.
"When the PEG falls below 0.5, the stock valuation is regarded as attractive by international standards," said Wu Feng, an analyst at TX Investment Consulting Co Ltd.
Jing Ulrich, chairman of JPMorgan Securities China Equities, was quoted as saying on Tuesday that international investors have begun to show interest in A shares.
Meanwhile, the reported average profit growth for 493 companies on the Shanghai and Shenzhen bourses in the first quarter was around 50 percent, higher than the projected whole-year corporate earnings. Around 1,060 companies will release their quarterly reports soon.
Large-caps led the rally yesterday. China Life surged 7.52 percent and Sinopec jumped 6.46 percent. China's largest steelmaker Baosteel jumped 6.61 percent while China Aluminum soared 6.1 percent after posting 1.17 billion yuan ($169 million) earnings in the first quarter.
However, analysts do not regard yesterday's jump as a sign of the start of a rally in the coming weeks.
"The major stock indicator is expected to fluctuate at a low level for a while before it gains momentum when the economic picture becomes clearer," said Wu.
Yan at Jintrust Fund Management advised investors to pay close attention to companies in upstream industry, high-end consumption, and electric and rail companies which attract government investment.
(China Daily April 24, 2008)