THE mainland’s main stock index sank 5.42 percent to a fresh 11-month closing low Thursday, its biggest drop since January, as panic over heavy supplies of new shares and slowing corporate earnings growth gripped the market.
Two more major stocks, China Shipping Container Lines (CSCL) and China Coal Energy Corp., fell below their IPO prices. On Wednesday, China Pacific Insurance became the first major firm to drop substantially below its IPO price since a ban on offers was lifted in mid-2006.
The falls alarmed the market by suggesting that large institutional investors, who had bought shares in the IPOs over the past several months, were so bearish that they were willing to suffer losses to get out of the stocks.
“The panic has grown like a snowball and spread from individual to institutional investors. No one knows what if any plan the authorities have to restore confidence,” said analyst Chen Jinren at Huatai Securities.
The benchmark Shanghai Composite Index ended at 3,411.493 points, just off its intraday low of 3,407.896. It is down 22 percent so far this month, and 44 percent below October’s record peak. The Shenzhen Composite Index fell 4.2 percent to 1,105.12.
Losing Shanghai shares far outnumbered gainers by 831 to 70, with over 25 Shanghai A shares dropping their 10 percent daily limits. Turnover in Shanghai A shares remained thin at 76.7 billion yuan (US$10.9 billion) against Wednesday’s 70.3 billion yuan.
Oil giant PetroChina, the most heavily weighted stock, slid 8.31 percent to a record closing low of 16.99 yuan, continuing a slide triggered by its disappointing 2007 earnings last week. It set a fresh record intraday low of 16.94 yuan, near its IPO price of 16.70 yuan.
Baosteel, China’s biggest steelmaker, tumbled 8.99 percent to 13.06 yuan after announcing late Wednesday that net profit slid 3 percent to 12.72 billion yuan last year, the first annual fall since 2001. The result was nearly 10 percent below analysts’ consensus forecast.
The index’s fall Thursday appeared to mark a clean break of technical support at 3,561 points, the 50 percent retracing of its bull run from June 2005.
It bounced during the day from near its June 2007 low of 3,404, which was reached during a slide triggered by a hike in the stock trading tax last May. Some traders see at least short-term support there.
“But if the index cannot find support at the 3,400 level, the 3,000 level will become quite likely,” said analyst Zhang Qi at Haitong Securities.
Major brokerage Shenyin & Wanguo Securities said in a report Thursday that the index was likely to continue setting new lows in the second quarter of this year, though it would rebound in the second half of 2008 as inflation eased and corporate profit growth started catching up with high valuations.
Concern about an imbalance between supply and demand in the market has worsened this month as tens of billions of yuan worth of shares have become newly tradable with the expiry of lock-up periods related to IPOs and reform of State shareholding systems.
(SD-Agencies)
