Index dives but shares of brokers get a fillip

By Richard Fu  |   2008-6-12  |     NEWSPAPER EDITION

SHANGHAI stocks extended their decline, with the key index falling beneath 3,000 for the first time since April, but brokerage shares rose on speculation that the regulator may soon allow margin trading.

The Shanghai Composite Index, which tumbled the most in more than a year on Tuesday after the government's harsher-than-expected monetary tightening, closed 1.57 percent off at 3,024.24 yesterday. It had touched a low of 2,992.35 in the morning session.

The market may drop further as there doesn't appear to be any positive policies coming, said Shenyin Wanguo Securities analyst Qian Qimin.

The 7.73-percent plunge on Tuesday, this week's first trading day, was in response to the central bank's weekend announcement to raise the bank reserve requirement ratio by a full percentage point, as well as weak global equity markets.

"Many were using the negative news to dump stocks, but I think that's only an excuse and this (the reserve ratio hike) should not be the ultimate factor because the overall sentiment is bearish now," Qian said. "The index may drop further to below 3,000, then 2,800 and 2,500."

Many have expected the government to step in with the index near the key 3,000 level, as it did in April. The government announced a cut in the stock transaction tax on April 23, the day after the index last fell below 3,000.

There has been intense speculation that the regulator may step in this time by introducing the long-awaited margin trading and securities lending, and this gave brokerage shares a fillip yesterday on expectations that they would benefit from a rise in trading activities.

Haitong Securities Co surged 9.98 percent to 28.87 yuan (US$4.17), Sinolink Securities Co jumped 6.64 percent to 49.28 yuan and Citic Securities added 2.84 percent to 32.18 yuan.

Lenders and property stocks remained weak as a higher reserve ratio, which curbs liquidity floating in the system and to tame inflation, would cut bank lending and companies' access to financing.

China Merchants Bank Co shed 4.78 percent to 24.1 yuan, and Shanghai Pudong Development Bank Co dropped 3.96 percent to 24.73 yuan.