Stocks News
- Chinese stocks defy rate hike
Date: 22-May-2007 Sources: (Xinhua Online)
Chinese stocks rose on Monday despite an increase in interest rates and bank reserve requirement announced on Friday.
The benchmark Shanghai Composite Index opened at 3,902.35, a decrease of 3.18 percent from the close of last session.
However, the index quickly recovered the lost ground and raced into positive territory in half an hour.
On Friday, the central bank raised benchmark one-year interest rate by 0.27 percentage points to 3.06 percent, and one-year lending rate by 0.18 percentage points to 6.57 percent.
It also ordered commercial banks to set side 11.5 percent, up from 11 percent, of their deposits as reserves.
That marked the first simultaneous use of the two monetary tools in a decade, as well as the eighth increase in reserve ratio since last July and fourth interest rate hike since last April.
The Shanghai Composite Index has soared 50 percent so far this year on top of a 130 percent rally in 2006, promoting worries of bububles building in the market.
Bubbles in the stock market is a concern, said central bank governor Zhou Xiaochuan earlier this month. The China Securities Regulatory Commission has demanded the brokers to educate investors on the risk in stock investment.
However, the retial investors have tended to ignore the warnings and tightening government policies. The Shanghai and Shenzhen market rose after the interest rate was hiked in March and the reserve requirement rose in April.
This kind of neglect of policy and blindly pushing up the equity market fosters a big market risk, said Zuo Xiaolei, chief economist of China Galaxy Securities said in an article earlier this month.
'China's equity market is starting to show signs of getting out of control,' said Zuo.
Professor Ning Xiangdong of Qinghua University agreed. 'People are crazy now. They talk about stock issues at work, at home ... they only care about speculation, they don't care about what the government has done to control the economy.'
CITIC Securities analyst Ma Qing expressed worries about the situation. 'It's time to despair if the bourse continues to rise on Monday.'
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