China's stock market resumed trading yesterday under capital
dilution pressure from floating of non-tradable shares. On the
first day after the week-long Lunar New Year holiday, the market was tested
by the floating of 1.16 billion shares previously non-tradable. As
a result, the major index lost another 2.37 percent.
In this month and the next, a total of 16.22 billion
non-tradable shares will become unfrozen. Yesterday saw the largest
single-day volume with 1.16 billion shares. Calculated on the
closing prices on February 5, the last trading day before the
holiday, these shares of 38 listed companies were worth 16 billion
yuan.
China Merchants Property Development had the largest number of
unfrozen shares, with 30.9 million shares. Its shares closed at
61.33 yuan, 0.28 percent down from the previous close. In other
words, the unfrozen shares from that company alone sopped up 1.9
billion yuan from the market. Shanghai Haixin Group ranked second
in terms of the number of shares unfrozen yesterday. Their shares
dropped 0.9 percent to 11.07 yuan. Zhejiang Shenghua Biok Biology,
with the smallest amount, closed at 11.52 yuan, up 0.17
percent.
As a result of capital dilution from the share floating, the
Shanghai Composite Index dropped another 108.98 points to 4,490.72.
Opening lower from 4,525.03, it went through the trading session
below the previous closing level, hitting a daily high at 4,547.54
and a low to 4,454.64. Of the A shares listed in Shanghai, 297
moved up, 63 ended flat while 490 closed down. Transaction value
reached 61.5 billion yuan, one third lower than February 5.
The Shenzhen Component Index, tracking the smaller Shenzhen
Stock Exchange, opened lower at 16,663.90, and closed even lower at
16,502.443, down 357.2 points or 2.12 percent from the previous
close. Of the A shares, 209 climbed up, 73 fell and 399 saw little
change in prices. Transaction value dropped to 26.8 billion yuan
from the last trading day before the holiday.
Yesterday's fall is another full-scale plunge as almost all
industrial indices were down except for the agriculture and
forestry sector. PetroChina, the most heavyweight stock in the
market, lost 3.2 yuan while index-driving banking giants were all
down. GD Power Development, however, after a 10 to 10 share
replacement and 1.2 yuan profit distribution each share announced
on February 5, became the largest trader yesterday and saw its
share price rocket over 5 percent against a depressive trend.
Since the start of this year, the Shanghai index has lost 14.7
percent and the Shenzhen index has dropped 6.8 percent in less than
two months. By yesterday, 3.3 trillion yuan had evaporated from the
stock market, a whole 10 percent lower from the end of last
year.
Analysts attributed this round of stock price plunges to
short-term discouraging factors, including a worldwide stock sale
last week, China's tightening measures finally taking hold, and the
prospective of capital dilution from share issues and
unfreezing.
Last week all the world's major markets experienced severe
drawbacks in light of worsening US economic prospects. After
Citigroup and Merrill Lynch announced fourth-quarter losses from
the subprime debt crisis, the fourth-quarter US gross domestic
product statistics implied a spill-over from the credit crisis to
other parts of the world's leading economy.
This Monday, Hong Kong's Hang Seng Index dropped 3.64 percent on
its first trading day after the holiday. In the past 12 years, Hang
Seng has never dropped on the day immediately following the holiday
break. Fortunately, the world's major stock markets started
recovering Tuesday.
China's most recent bank reserve ratio hike this year, the 11th
since 2007, finally got investors' attention. Unlike the previous
cases in which when a tightening signal was given out, the market
reacted by leaping upward against regulator's intention, this time,
the measures started to take effect. That is because the December
loan, property and export statistics have all suggested slowed
growth, analysts said.
In addition to Ping An's expected 160 billion yuan additional
share and bond sales, China's stock market will also face severe
pressure from the recent de-freezing of non-tradable shares.
Estimated to be sopping up 518.9 billion yuan calculated using
prices by February 5, these unfrozen stocks may keep the market
from regaining higher positions for now, said analysts.
However, in the longer-run, things could be different. US
president George W. Bush is expected to sign on an incentive
package worth US$150 billion in a bid to stimulate the US economy
through tax cuts to salary earners and corporate taxpayers. In
addition, the weakening US dollar left less space for further
interest rate raises for China, said experts, and that could be
good for China's capital market.
(Chinadaily.com.cn February 14, 2008)
