Stocks dive amid fears of tightening policies

By Jin Jing (China Daily)
Updated: 2007-07-06 06:49

SHANHGAI: The stock market plunged more than 5 percent yesterday - the largest one-day dive in a month - amid worries over government tightening polices.

The Shanghai Composite Index dropped 200.29 points, or 5.23 percent, to close at 3615.87, with 819 out of 899 stocks closing lower.

The index has plummeted 719.05 points, or 16.6 percent, after the government announced the tripling of stamp tax at the end of May.

Despite the latest drop, the indicator has risen 110 percent in the past 12 months.

Turnover on the Shanghai bourse was very thin, at 73.755 billion yuan ($9.7 billion), compared with this year's record of 271 billion yuan ($35.6 billion) on May 30. The number of new A-share accounts opened on Wednesday dwindled to 70,132, the lowest in the past four months.

The smaller Shenzhen Composite Index dropped 5.85 percent to close at 1015.85, while the foreign-currency denominated B-share index slid 3.23 percent to close at 246.55.

Analysts said that worries are spreading among investors that the government's tightening measures may suck in liquidity from the market. Many investors have begun to stay away from the market, they said.

"Investor sentiment is not expected to recover soon and the market will continue to be volatile in the coming several weeks," said Song Zhongqing at Changjiang Securities.

"The uncertainty on details of the special bond issue is a major concern for investors," said Li Huiyong, an analyst at Shenyin Wanguo Securities.

The Ministry of Finance said on Wednesday that the $200 billion ($26.3 billion) special bond issue is not targeted at the stock market, and will not directly siphon the existing liquidity out of the stock market.

Other investor concerns include the rapid rise in IPO approvals, the wider investment avenues for qualified domestic institutional investors (QDIIs), the expectation of an interest rate hike, and the likely scrapping of the tax on interest from saving deposits, which are expected to curb the liquidity in the market, analysts said.

They said that the market is expected to pick up after government policies become clearer, the price-to-earning ratio returns to a reasonable level, and the results of listed companies in the first half of this year - expected to be good - are announced.

(China Daily 07/06/2007 page1)

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