Stocks News
- Stock market at a turning point
Date: 10-Jul-2007 Sources: (Shenzhen Daily)
THE government may have finally won its fight to cool investor enthusiasm for stocks, after months of speculative frenzy set regulators on edge over a potential crash, analyst said Sunday.
Since January, investors had ignored repeated government warnings about the run-up in share prices, but after another volatile week investors' appetite for investing appears to be diminishing, they said.
'The liquidity boom in China is finally seeing signs of a substantial change,'said Jerry Lou, an economist at Morgan Stanley in Hong Kong.
Share prices are still up nearly 40 percent from January after climbing 130 percent last year, but trade volumes are down sharply.
Daily turnover has declined by more than half from May's highs of more than US$40 billion, while the number of new stock accounts being opened slipped to between 70,000 and 80,000 a day.
In May, when the key Shanghai Composite Index hit a series of records to put the index above 4,300 points, new retail trading accounts were being opened at a rate of 300,000 a day.
Although the market closed last week only about 1.5 percent lower after recouping 4.5 percent Friday, prices have slipped more than 13 percent since mid-June, with sentiment dogged by a spate of new policies.
Those anxieties came into focus when the Shanghai index tumbled 5.25 percent Thursday, after falling more than 2 percent Wednesday, on fears over the impact of a special 1.55 trillion yuan (US$204 billion) treasury bond issue.
'The market's continuous correction in the past week since the Ministry of Finance's plan to issue special treasury bonds to finance (its forex investment agency) was approved appears to represent a turning point of the market sentiment on liquidity.'Lou said.
Investors have been unsettled over government intentions since the special bond plan was approved two weeks ago and on news that the finance ministry would issue the first tranche of 500 billion yuan soon.
Adding to nervousness were reports that the government will expand its Qualified Domestic Institutional Investor (QDII) program, which aims to allow domestics funds to invest overseas, especially in Hong Kong.
Investors worry that this program could also threaten domestic liquidity as strict restrictions on capital outflows for major insurers and investment firms are loosened.
The moves were part of what are concerted efforts to cool stock markets amid fears that overheating could result in punters losing everything if the speculative bubble were to pop.
Early this month, the National People's Congress approved adjustments to a tax on interest earned by bank accounts, a move aimed at making deposits more attractive so as to steer some liquidity away from the stock markets.
Regulators have also actively promoted majors listed on Hong Kong stock exchanges to list on home bourses, with the flood of new share issues expected to squeeze liquidity even more.
Wu Zuyao, chief strategist with Galaxy Securities based in Beijing, said that investors were bothered by the uncertainty over how these new policies would play out.
'The uncertainty in these policies has accelerated the market corrections,'said Wu.
'How will the 1.55 trillion yuan issue impact the financial market and how will it impact the property and stock market - this will take time to observe.'
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