Published on ShanghaiDaily.com (http://www.shanghaidaily.com/)
http://www.shanghaidaily.com/sp/article/2008/200806/20080611/article_362780.htm
Stocks plunge in wake of tighter credit, global fallout
Created: 2008-6-11 0:35:00
Author:Richard Fu
CHINA'S benchmark stock index plunged nearly 8 percent yesterday following the central bank's move to tighten credit and an overall weakness in global equity markets.
Falls on the two mainland markets wiped a massive 1.7 trillion yuan (US$245.47 billion) off their value, compared to Friday's close.
The Shanghai Composite Index tumbled 7.73 percent to 3,072.33 after falling 8.55 percent at one stage. This marked the largest percentage drop since June 4, 2007, when it slumped 8.26 percent.
The smaller Shenzhen Composite Index fell 8.02 percent to 928.20.
The central bank on Saturday ordered lenders to set aside more money as reserves to curb liquidity and inflation. The reserve ratio will rise 0.5 percentage point on June 15, and another half percentage point on June 25 to a record 17.5 percent.
The market was closed on Monday for a public holiday.
Analysts said investors dumped stocks as the reserve-ratio increase of a full percentage point was harsher than thought and because of weak global stock markets.
Nearly 1,000 stocks on the two mainland bourses fell the maximum allowable 10 percent at one stage.
Investors were also unwilling to buy ahead of the release of the key May inflation data later this week. Some reports say inflation may slow to 7.7 percent last month from April's 8.5 percent, which was almost the highest in 12 years.
"There is a panic selling and the sentiment is weak," said Wu Kongyin, an analyst at United Securities.
"Many chose to stay sidelined and there's a clear sign that the index is accelerating downwards in the short term."
Qilu Securities analyst Li Hongyan said the mainland markets may fall further in coming sessions.
Banks and property stocks were the hardest hit yesterday by the reserve-ratio rise, which means there will be less money available for lending and investment. Industrial & Commercial Bank of China shed 8.35 percent to 5.38 yuan and Bank of China declined 7.87 percent to 4.33 yuan. China Vanke Co, the country's largest publicly traded property developer, slumped 10 percent to 17.70 yuan.
The reserve-ratio increase will drain more than 400 billion yuan from the banks, according to South China Securities analyst Geng Dang'en.
Top Asian refiner Sinopec Corp plummeted 8.39 percent to 12.34 yuan after National Development and Reform Commission Deputy Director Zhang Guobao said China's fuel-price controls are conducive to social stability and accelerating pricing reforms would worsen the impact of rising crude oil prices on farmers.
China refiners are struggling with record high crude rates as they cannot pass on the cost to consumers under state-set restrictions.
PetroChina Co, the nation's second-largest refiner and the largest weighting in the index, yesterday lost 6.06 percent to 16.13 yuan. Air China Ltd tumbled 10 percent to 10.99 yuan, yet another victim of the spiraling price of fuel.
Falls on the two mainland markets wiped a massive 1.7 trillion yuan (US$245.47 billion) off their value, compared to Friday's close.
The Shanghai Composite Index tumbled 7.73 percent to 3,072.33 after falling 8.55 percent at one stage. This marked the largest percentage drop since June 4, 2007, when it slumped 8.26 percent.
The smaller Shenzhen Composite Index fell 8.02 percent to 928.20.
The central bank on Saturday ordered lenders to set aside more money as reserves to curb liquidity and inflation. The reserve ratio will rise 0.5 percentage point on June 15, and another half percentage point on June 25 to a record 17.5 percent.
The market was closed on Monday for a public holiday.
Analysts said investors dumped stocks as the reserve-ratio increase of a full percentage point was harsher than thought and because of weak global stock markets.
Nearly 1,000 stocks on the two mainland bourses fell the maximum allowable 10 percent at one stage.
Investors were also unwilling to buy ahead of the release of the key May inflation data later this week. Some reports say inflation may slow to 7.7 percent last month from April's 8.5 percent, which was almost the highest in 12 years.
"There is a panic selling and the sentiment is weak," said Wu Kongyin, an analyst at United Securities.
"Many chose to stay sidelined and there's a clear sign that the index is accelerating downwards in the short term."
Qilu Securities analyst Li Hongyan said the mainland markets may fall further in coming sessions.
Banks and property stocks were the hardest hit yesterday by the reserve-ratio rise, which means there will be less money available for lending and investment. Industrial & Commercial Bank of China shed 8.35 percent to 5.38 yuan and Bank of China declined 7.87 percent to 4.33 yuan. China Vanke Co, the country's largest publicly traded property developer, slumped 10 percent to 17.70 yuan.
The reserve-ratio increase will drain more than 400 billion yuan from the banks, according to South China Securities analyst Geng Dang'en.
Top Asian refiner Sinopec Corp plummeted 8.39 percent to 12.34 yuan after National Development and Reform Commission Deputy Director Zhang Guobao said China's fuel-price controls are conducive to social stability and accelerating pricing reforms would worsen the impact of rising crude oil prices on farmers.
China refiners are struggling with record high crude rates as they cannot pass on the cost to consumers under state-set restrictions.
PetroChina Co, the nation's second-largest refiner and the largest weighting in the index, yesterday lost 6.06 percent to 16.13 yuan. Air China Ltd tumbled 10 percent to 10.99 yuan, yet another victim of the spiraling price of fuel.
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