China stocks fall 5.5% in a correction

By Dong Zhixin (
Updated: 2008-04-09 16:12

A fresh wave of selling hit China's equities on Wednesday, pushing a key index down more than 5 percent, amid a mixture of lingering worries.

The Shanghai Composite Index tumbled 5.5 percent to 3,413.90 points, marking a loss of 44.26 percent drop from its peak in Mid-October.

Analysts said the decline was a natural correction as the gauge surged nearly 400 points after touching the lowest level in nearly a year last Thursday.

Worries over temporary liquidity might also be a factor, as a new wave of initial public offerings started this week after a 40-day gap.

In the past few months, investors in the country have flocked to the primary market for almost risk-free gains as volatility increased in the secondary market. However, that trend might slow down as several major players have fallen below their IPO prices.

What also weighed on investors' sentiments are concerns about further monetary tightening to fight inflation, which hit 8.7 percent in February. It is widely believed that the March figure, while easing a bit, will stay above 8 percent.

Fears over a decline in corporate earnings, the cornerstone of a bull market, due to the impact of the credit crisis in the United States and a faster appreciating yuan, added to the selling pressure.

Less than 10 percent of the 1,400 stocks in the Shanghai and Shenzhen bourses posted gains, while trading volume shrank slightly to some 124 billion yuan.

Blue chips led the decline, with PetroChina tumbling 4.84 percent to 17.32 yuan per share, approaching its IPO price of 16.7 yuan.

Financial shares continued their weak performance. The Industrial and Commercial Bank of China fell 4.6 percent to 6.01 yuan, while China Life nosedived 7.34 percent to 30.16 yuan.

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