|
Stock markets slumping to 8-year lows
(chinadaily.com.cn)
Updated: 2005-06-06 08:28
The future of China's deeply troubled stock markets went from bad to worse,
slumping to fresh eight-year lows as regulators' plans to solve the overhang of
non-tradable government-owned shares heightened fears more losses lie ahead.
The benchmark Shanghai Composite Index, which covers both A- and
B-shares listed on the Shanghai Stock Exchange, closed at a fresh eight-year low
Friday, down 2.43 points, or 0.24 percent, at 1,013.64.
It was the lowest
close since February 24, 1997 after three consecutive sessions of losses that
saw the composite trim 3.8 percent of its value.
Dealers said they expect
the index to fall through the key technical mark of 1,000 points soon unless
Beijing steps in with strong medicine to cure broken investor
confidence.
"The market has been falling for years and investors are
numb," said Zhang Qi, analyst from Haitong Securities.
"The key is to
recover investors' confidence. There is more that the government could do to
better support investors in the market."
In April, Beijing tentatively
moved to prop up the beleaguered exchanges to not just halt the financial
hemorrhaging but also as a first stitch in a wound that has been festering for
years.
The China Securities Regulatory Commission chose four companies
under which the non-tradable shares would be listed, and then announced this
week it would select 10 more.
But at both junctures, anxious investors
responded with more selling.
"The sentiment was so weak that the index has
been falling really fast. Some companies' stocks even lost all of last year's
gains in these several sessions," said Zhang.
It was not the first time
that regulators sought a solution to the parlous overhang, in which of the 1,200
listed companies Beijing owns 66 percent of the 3.52 trillion yuan (US$425
billion) of market capitalization.
Indeed it is these state holdings that
has stopped cold the growth of China's bourses, quite the opposite of what would
be expected in an economy that has been growing at more than eight percent for
two decades.
Regulators first tried to resolve the overhang of state
shares in 2001 to raise funding for China's fledgling social security system but
panicked investors sent stocks plunging, forcing authorities to abort the
plan.
Since then, Beijing has repeatedly vowed to fix the problem but
only soiled the wound by constantly balking at private and institutional
investor demands that their interests be protected in any sale
program.
The market last peaked at 2,245 points four years ago.
It
was no surprise the markets continued an inexorable slide, said a Shanghai fund
manager, refusing to be named.
"The market has been falling because the
first batch of plans were really not that good. We don't think the next batch
will be very good either," he said.
The reason China's stock markets are on
the verge of collapse has to do with the original design and purpose of the
exchanges.
Fifteen years ago, the central government in Beijing, looking
for a way to avoid paying enterprises' heavy debts and fund a welfare system
which once was the responsibility of chronically money-losing state-owned
companies, struck on the idea of creating self-serving capital markets.
Under given quotas, provincial officials selected weak enterprises in
hopes of clearing the mountains of debt built up in the days when workers were
provided from the cradle to the grave by enterprises.
The result: the
bourses never functioned like Western bourses but rather as a policy tool of the
government that bred corruption and theft.
Although market players
recognize that the state holdings must be disposed of, years of half-baked,
non-committal government measures has made the average investor rightly
suspicious.
"Investors couldn't help but doubt that this state shares
sale plan is not something positive," said Yi Linming, analyst at Industrial
Securities.
"And the more they doubted, the more the market panicked and
the more the market panicked, the more they doubted," said Yi.
Now the
overseer's slower and more-measured approach to push through reforms, while
widely appreciated as necessary, remain under fire because investors complain
that the government is looking out for its own interests only.
"What the
investors need is compensation, and it is the government who should be
responsible for it," said Yi.
|
