Stocks set for another week of downturn

By Richard Fu  |   2008-6-30  |     NEWSPAPER EDITION

SHANGHAI stocks are expected to come under downward pressure this week on concerns further monetary tightening measures may be imposed and record high oil prices would hurt corporate earnings.

The benchmark Shanghai Composite Index fell 2.94 percent last week after rising earlier in the week. Last Friday, the index tumbled 5.29 percent to 2,748.43, the lowest close in 16 months, as investors cashed out on rumors the central bank would raise interest rates at the weekend.

"Such expectation of a rate hike still exists, so big institutional investors won't build major positions at this time," said Liu Jingde, a Cinda Securities analyst. "If there is no major positive measure, the market cannot bounce back significantly as market confidence has dived after recent declines."

Stocks on Wall Street also took a tumble when crude oil surged above US$140 a barrel in New York last week and on remarks by the president of OPEC that prices may rise to between US$150 and US$170 this summer.

"The correction in other markets triggered by high oil prices is spreading to the domestic market'' and no end in sight is seen, said Teng Yin of Everbright Securities. He forecast the Shanghai index could move between 2,650 and 3,000 this week.

Heavyweight refiners such as Sinopec Corp and PetroChina Co are seen as the biggest losers from the rise in crude rates as they cannot freely pass on the higher costs to end users as the government set fuel prices. The government last raised pump prices on June 20.

Sinopec, Asia's largest refiner, tumbled 9.12 percent to 10.27 yuan last Friday. PetroChina, the largest component stock in the index, hit an all-time low of 14.9 yuan since its listing in November last year.

People's Bank of China Governor Zhou Xiaochuan has said "stronger policies" may be coming to cope with inflation exacerbated by the latest fuel price rise.