Shares decline not sustainable

By Wang Yanlin  |   2008-6-19  |     NEWSPAPER EDITION

WHEN China's stocks plummeted despite healthy overall economic fundamentals, the decline went against the principle that the stock market worked as an economic barometer, said Li Deshui, former director of the National Bureau of Statistics.

He added the slide should be a temporary phenomenon.

"The recent corrections in China's stock markets come amid volatility prevailing in nearby bourses and in the United States, Europe and Japan. But it by no means indicates our markets lack the ability to rebound," said Li in an article published yesterday.

"Our markets are vulnerable to some accidental factors but the corrections won't last long," said Li. "China's stock markets won't let down mature investors."

The nation's stock markets performed generally robustly until October last year when the benchmark Shanghai Composite Index touched a record 6,124 and had a price earnings ratio of 50 times.

However, the benchmark index has tumbled and has lost more than half its level since last October.

In contrast, China's economic fundamentals did not change drastically during the period while the quality of listed firms and the market's infrastructure have improved considerably, Li said.

Soft landing

In particular, the latest data in May showed that China's economy was heading towards a soft landing after reports of overheating. For example, the Consumer Price Index, the main gauge of inflation, has eased to 7.7 percent last month while retail sales, which overtook investment and trade to become the biggest driver of the economy, expanded 21.1 percent.

Li urged investors to understand better China's macroeconomic policies.

"The tighter credit control does not target at the stock market. The recent increase of reserve requirement ratio aims to soak up the excess liquidity of deposits in financial institutions," said Li, who stressed funds were still plentiful for stock investments.