Wednesday 31 December 2008
Shanghai Closes as the Worst-Performing Stock Market
And the market’s supply/demand balance may actually worsen. The expiry of lock-up periods for investors next year will make 688 billion shares newly subject to selling, more than four times the number which became tradable this year, according to the official China Securities Journal.
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Shanghai Closes as the Worst-Performing Stock Market
Reuters in Shanghai
31 December 2008
Shanghai’s stock market ended this year with an annual loss of 65 per cent, the biggest drop in its 18-year history, after the global economic slump burst a speculative bubble in share prices.
The slide made Shanghai the world’s worst-performing major stock market for the year, erasing nearly US$3 trillion of market value – an amount almost as large as the country’s entire economic output of US$3.4 trillion last year.
Fund managers and analysts think stocks may stop falling by mid-next year in anticipation of an economic recovery. But sagging corporate profits and a poor supply/demand balance in the market may slow any rebound in share prices and keep risks high.
“This year was like falling off the top of a mountain for investors,” said Zhang Qi, analyst at Haitong Securities in Shanghai. “Confidence will not recover quickly.”
The benchmark Shanghai Composite Index dropped 0.66 per cent in thin trade on Wednesday to close at 1,820.805 points. Falling Shanghai A shares overwhelmed gainers by 701 to 194.
The index soared 130 per cent in 2006 and 97 per cent last year as a booming economy and the government’s drive to list top local firms lured millions of new investors into the market.
But stocks suffered a stunning reversal this year as heavy supplies of fresh equity, followed by downturns in the global and mainland economies, caused investors to lose faith in sky-high stock valuations that reached several times global levels.
Fund managers think next year will not be nearly as disastrous. Valuations of many mainland blue chips have dropped back near global levels, and the government is launching a US$585 billion economic stimulus plan.
Many analysts believe the index is unlikely to fall far below 1,500 points, and some see a chance for a rise as high as 3,000 points next year.
But so far, funds are not backing up that optimism with aggressive buying of stocks. Analysts estimate mainland corporate profits could drop 5 or 10 per cent next year, after profit growth for this year in the low single digits.
And the market’s supply/demand balance may actually worsen. The expiry of lock-up periods for investors next year will make 688 billion shares newly subject to selling, more than four times the number which became tradable this year, according to the official China Securities Journal.
Partly because of the approach of the new year holiday, turnover in Shanghai A shares shrank on Wednesday to 33.4 billion yuan (HK$37.97 billion), its lowest level since November 7, from 37.8 billion yuan on Tuesday.
China Eastern Airlines slid 8.02 per cent to 4.13 yuan, adding to a 3.65 per cent loss on Tuesday. It announced late on Monday that it would receive a 7 billion yuan capital injection from the government, but the aid was expected and investors fear weak traffic growth in the industry next year.
Three steel companies fell for a second straight day after they announced a merger that would create the country’s largest listed steel maker. Analysts are sceptical that the deal will help the companies in the short term, given the softness of the steel market.
Tangshan Iron & Steel tumbled its 10 per cent daily limit for a second day, Chengde Xinxin Vanadium & Titanium lost 7.68 per cent after dropping 10 per cent on Tuesday, and Handan Iron & Steel slid 5.25 per cent after falling 3.41 per cent on the previous day.
Luenmei Group and Datong Gas separately said they were calling off asset restructuring plans because of instability in the economy and capital markets. Luenmei lost 6.68 per cent while Datong plunged 10 per cent.
Jiangxi Copper slipped 3.48 per cent to 9.98 yuan after saying an equipment malfunction would reduce production capacity by 20 per cent at its main Guixi smelter.
Shanghai Haixin Group fell 8.71 per cent to 2.83 yuan after saying it expected to post a big loss for this year.
Among gainers, China Railway Construction rose 1.21 per cent to 10.04 yuan after saying its subsidiaries had won contracts worth 7.08 billion yuan to build railways in the country’s southwest.
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