Stocks under psychological mark

By Zhou Yan (China Daily)
Updated: 2008-09-06 08:45

SHANGHAI: A sharp fall in the US market overnight dragged down the mainland stock benchmark index by more than 3 percent on Friday to a 20-month low.

The Shanghai Composite Index fell 74.96 points, or 3.29 percent, to close at 2202.45, the lowest since Dec 11, 2006.

The index fell through 2245 points without any resistance. It was labeled as a psychological mark by analysts as it was the peak of the market's last bullish circle that ended in 2001.

The key index has declined more than 58 percent this year, and 63 percent from its peak in October.

The smaller Shenzhen Component Index slid 2.8 percent to close at 7264.2. Turnover on the two bourses amounted to 41.3 billion yuan ($6 billion), up 8.7 percent from Thursday.

Analysts said the tumble on Wall Street caused by disappointing jobless and retail data has left investors doubtful of a US economic recovery.

The Dow Jones index fell 344.65 points, or 2.99 percent on Thursday, the third largest drop this year.

Markets in Europe and Asia all failed to avoid the carnage.

The breach increased market panic on the mainland and the weak sentiment will remain until authorities come up with detailed market-boosting measures, analysts have said.

Zhu Kangping, a strategist at Shenyin Wanguo Securities in Shanghai, said on Friday: "The recent continuous declines caused panic. Today, most securities shares slumped over 5 percent as investors feel hopeless about the market."

And an upcoming IPO review of China Merchants Securities raised investors' fears over shrinking liquidity.

As one of China's biggest brokerages, Merchants Securities said in its draft prospectus that it plans to issue 358.55 million A shares, or 10 percent of the total, in its IPO.

The sale of the brokerage's shares is highly likely to be approved when authorities review it on Monday, which has raised investor worries over a liquidity crunch, analysts said.

Besides, the Shanghai and Shenzhen stock exchanges announced on Friday new IPO rules, to come into effect on Oct 1, guiding share sales.

According to the rules, investors who buy shares in private placements will be allowed to sell them one year after the company is listed, as compared to three years previously. This adds to the worry about more supply of shares in a weak market.

Agencies contributed to the story