Reserve ratio hike fails to slow indices

By Ding Qi (
Updated: 2007-07-31 17:46

The central bank announced yesterday a rise in the reserve ratio by 0.5 percentage point to 12 percent beginning August 15. It marks the sixth increase this year, widely considered as further attempts at mopping up excess liquidity by tightening bank credit.

Yet even share prices of listed banks were not greatly affected due to the robust half-year earnings. Bank of China slightly fell 0.55 percent to 5.43 yuan; while China merchants Bank gained 1.43 percent although opened lower in the morning.

However, there are reasons to exercise caution. The China Securities Journal reported today that more than 6.95 billion shares from 100 listed companies with a market value of 126.6 billion yuan are allowed to be traded publicly from August according to their share-holding reform schedule. Some dealers worried that the additional shares in circulation may take funds from the market and undermine the upward momentum of the index in the short term.

The whole month of July saw the index surge more than 900 points from its lowest 3563 to a high of 4471, a historical high. For most investors, the past month was a dramatic shift from pessimism to high hopes as well as a challenge to their patience and endurance.

Insiders were reminded that a sober investment is necessary when the market reaches record highs. According to them, analysis based on all kinds of information and including the bad news, is more helpful than rumors or hearsay.

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