Stocks News
- Shares, turnover surge after interest-rate hike
Date: 24-Jul-2007 Sources: (Shenzhen Daily)
THE mainland's main stock index surged 3.81 percent and turnover rose to a four-week high yesterday as investors moved back into shares, particularly banks and steel, after the central bank tightened monetary policy.
The central bank's hike of 0.27 percentage point in one-year deposit and lending rates Friday had been anticipated, traders said, while some were relieved that the tightening was not harsher after a high June inflation figure.
Investors were also pleased that lending and deposit rates were raised by the same amount, in contrast to a previous monetary tightening in May, when the deposit rate was hiked by more than the lending rate, a gap that threatened banks' profit margins.
The Shanghai Composite Index ended at 4,213.361 points, close to its intraday high of 4,220.322, its highest level this month. Gaining Shanghai stocks overwhelmed losers by 874 to 6. On Friday, the index climbed 3.73 percent.
Turnover in Shanghai A shares jumped to 152.3 billion yuan (US$20.1 billion) from Friday's 103.3 billion yuan, showing investors were returning to the market after turnover dropped this month because of uncertainty over policy. The Shenzhen Composite Index ended up 5.1 percent at 1181.45.
The government also said Friday it would cut the tax on interest income to 5 percent from 20 percent, which could pull money from stocks into bank deposits. But with the market strong, the tax cut is unlikely to have a major impact on fund flows any time soon, analysts said.
'The government's moderate reaction toward June's inflation data has eased investors' concerns about a strong tightening policy,'said Ren Chengde, senior analyst at Galaxy Securities.
Ma Jun, senior economist at Deutsche Bank, said in a note that Friday's policy actions and likely monetary moves in future would be positive for insurance companies, neutral or slightly negative for banks, and more negative for property developers.
He and other economists said Friday's tightening would have almost no impact on the economy, allowing strong profit growth to continue. Companies will report first-half earnings in the next several weeks, and preliminary estimates released by banks have been very positive.
However, analysts also noted that with no clear sign that inflation was under control, monetary tightening could still undermine the market later this year. Many see strong resistance for the stock index at 4,335 points, the record intraday high hit in May.
'The index may stay around 4,000 points in the short term, since there is no strength in the market to set a new record. Major blue chips are overvalued right now,'said Zheng Weigang, senior analyst at Shanghai securities.
Industrial & Commercial Bank of China (ICBC), the most heavily weighted stock, gained 2.68 percent to 5.75 yuan but came sharply off its intraday high of 5.91 yuan. Shenzhen Development Bank soared 8.10 percent to 32.95 yuan.
Steelmakers drew interest because of their modest valuations, said Wang Sheng, a strategist at Haitong Securities.
Baoshan Iron & Steel jumped by the daily 10 percent limit to 12.07 yuan. Twenty-four other steel stocks jumped their daily limits.
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