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A sell-off by skittish investors led Shanghai B shares to their biggest single-day drop since the 10 percent trading limit was imposed more than four years ago.
The B-Share Index tumbled 9.78 percent to 143.98, a four-month low. The record for a bad day was the 12.26 percent nosedive recorded on December 13, 1996.
So far this year, the hard-currency shares have traded between 78.59 and 239.73 points.
Trading volume yesterday amounted to US$108.55 million, up 74 percent from the previous session.
The Shenzhen B-Share Index also ended sharply lower, finishing 7.15 percent down at 250.62.
Analyst Xu Dong of China Communication Securities Co. said the market took a beating mainly because of an investigation that began last month by China's central bank into illegal currency transactions.
"The government recently tightened its control of foreign currency and also beefed up efforts to stem the inflow of illegal funds. That means the supply of fresh capital has been cut off," he said.
Xu predicted a continuing bearish trend for B shares in the near term.
All 52 firms listed on the Shanghai B-share bourse headed south yesterday, and 22 fell by the 10 percent trading limit.
Among the biggest casualties were Shanghai Diesel Engine Co., which closed at 62.6 U.S. cents, and chemical fiber maker Shanghai Worldbest Co., which finished at 63.5 U.S. cents.
Lu Liang, an investment manager in China Securities Co.'s international business division, contended that B shares were taking a cue from the yuan-denominated A-share market, which was wracked recently by an influx of state-held shares and an earnings fraud scandal surrounding a blue-chip firm.
"The B-share market is vulnerable to any negative factors. When A shares decline, B shares tend to fall more heavily," he said. "You cannot expect B shares to show any gains at this moment."
The Shanghai A-Share Index dropped 3.78 percent to 1971.26.
Trading volume was 7.05 billion yuan (US$850 million), up 45 percent from the previous session.
"It was a broad-based fall, and you cannot say which sector led the decline," said Zheng Weigang, an analyst at Shanghai Securities Co.
Among the factors fuelling the selling spree was an article published recently by Beijing-based Caijing Magazine, which claimed that profitable Guangxia Industry Co. fabricated most of its earnings over the previous two fiscal years.
(eastday.com 08/07/2001)
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