Chinese shares in renewed slump

Thursday, 5 July 2007, 12:21 GMT 13:21 UK
Chinese shares in renewed slump
Chinese shares have fallen by more than 5% on fears that the rising number of listings and new share issues will weaken the value of existing stock.
The Shanghai Composite Index closed at 3,615.87 after its biggest one-day decline for 10 weeks.

A government plan to issue 1.5 trillion yuan ($200bn; £100bn) in special bonds to fund its foreign reserve investment agency also hit sentiment.

The losses could mean China's soaring market has peaked, analysts say.

"With huge new share supplies pouring into the market and under the pressure of the upcoming special bond issuance, investors see no hope for the market to reverse its recent weakness in the near term," said Zheng Weigang, a senior analyst at Shanghai Securities.

Inflation fears

Investors have been wary since late May, when Beijing moved to cool the market by increasing stamp duty on share transactions.

The Chinese government is keen to prevent rising inflation from spiralling out of control and to curb its soaring trade surplus, which has been the source of much contention with its key trade partners, such as the US.

Before the recent falls, the index had doubled in value this year alone and had pushed through the 4,000 mark.

Private investors have raced to transfer money from their savings accounts into shares over the past 18 months, with a quarter of the 102.5 million stock-trading accounts opened in that time.

This has prompted an increasing number of firms to seek initial public offerings on the main Shanghai market to take advantage of investor demand, such as China's biggest coal miner, Shenhua Energy, which plans to raise up to $6.3bn (£3.1bn) from a listing.

But this trend could have the opposite effect, as state-owned firms are seeking to dump loads of shares on the market to dilute existing prices.

And in May, China paved the way for corporate investors to acquire overseas assets, which could weaken further the appeal of the domestic market, analysts say.

Source From BCC