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