Business / Opinion

Stock market to remain weak

By Xin Zhiming ( Updated: 2014-04-29 13:44

China's stock market has come to a stage where those who long the market and those who short it can both be justified to defend their stance.

The benchmark Shanghai Composite Index fell by 1.6 percent on Monday to come close to the psychological mark of 2000 points. It has slumped by nearly 7 percent since April 10.

Whether it rallies or continues to fall on Tuesday, therefore, would not change the fact that it is in a downward cycle. Any short-term rallies would not bail it out if China's economic fundamentals remain weak.

Economic fundamentals are a barometer of the stock index, although the gauge with Chinese characteristics is not always sensitive in this market.

In the immature stock market, which is fraught with irregularities ranging from insider trading to porous IPO procedures, China's economic booms may not be fully reflected in the stock index changes.

But whenever the economy loses its steam and becomes slower in expansion, the stock index has seldom failed to follow suit.

Admittedly, those who long the market have ample reasons to support their stance.

Policymakers are racking their brains to boost the economy. The recent policies include renewed investment in infrastructure, shanty town rebuilding, tax cuts and opening of the monopoly sectors to private investors.

The International Monetary Fund has raised its forecast of China's GDP growth by 0.3 percentage point to 7.5 percent for 2014. It serves as a shot in the arm of those who remain optimistic toward the growth prospects of the world's second-largest economy.

Technically, the MSCI China index shows Chinese stocks are traded at about 8.8 times 12-month forward earnings, a near 27 percent discount to its long-term average of 12 times, securities firm Nomura said.

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