China stocks break key barrier

By Dong Zhixin (
Updated: 2007-05-09 15:27

Investors monitor the movement of stock prices at a brokerage firm in Guangzhou, South China's Guangdong Province May 9, 2007. [newsphoto]

China's main stock index hit a fresh all-time high after breaking a key barrier of 4,000 points due to the soaring blue chip stocks as investors shrugged off official warnings of a possible market bubble amid soaring corporate profits.

The benchmark Shanghai Composite Index, the most widely watched indicator of the mainland's stock market, gained 1.60 percent to end at 4,013.08 points, breaching the psychologically important mark of 4,000 for the first time.

That marks a gain of 50 percent so far this year on top of a 130 percent rally in 2006.

Blue chip stocks showed strong performances. China Unicom, the nation's second largest wireless operator, jumped its daily limit of 10 percent to close at 6.35 yuan per share.

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Bank of China rose 7.77 percent to 6.10 yuan, while Industrial and Commercial Bank of China was up 5.47 percent to 5.78 yuan.

The surge came after the Shanghai Composite Index was pushed to a new high in the previous session as new investor cash flooded in after the week-long May Day market recess and China's yuan broke the barrier of 7.70 against the US dollar.

The consistent hitting of new highs since January was partly driven by the wave of money brought in by new investors.

Some 4.787 million new A-share trading accounts were opened in April, more than the combined number of the previous two years, statistics from China Securities Depository and Clearing Corporation.

The figures for the new accounts are considered a rough indicator for the number of new individual investors entering the market.

Analysts said the market may undergo drastic fluctation after the index breaks the 4,000 point mark, as worries about stock overvaluations build up.

The stocks in the Shanghai and Shenzhen markets are trading at more than 40 times  earnings per share on average, much higher than developed markets overseas.

The growing bubble in the country's stock market is a concern, said central bank governor Zhou Xiaochuan last week, adding he would closely monitor asset prices, the consumer price index and producer price index.

Zhou's remarks added to speculation there could be an interest rate hike as early as next month.

Xie Guozhong, former chief China economist for Morgan Stanley, suggested regulators should come up with certain policies to put the brakes on the surging stock market for the good of long-term economic development and social stability.

"China's equity market is starting to show signs of getting out of control," said Zuo Xiaolei, chief economist of China Galaxy Securities in China Securities Journal on Wednesday

The market rose even after the interest rate was hiked in March, and the bank reserve ratio was raised in April, said Zuo.

"The neglect of policy and blindly pushing up the equity market fosters a big market risk," he claimed.

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