Stocks Seen to Decline Sharply in China

Stocks Seen to Decline Sharply in China

     

    China stocks are expected to fall sharply when trading starts today after the Mid-Autumn Festival holiday, trailing plunges in global markets hit by a Wall Street financial crisis, analysts said.

    The decline is expected despite the Chinese central bank announcing yesterday it would cut interest rates to stimulate economic growth.

    Markets from Sydney to London and New York tumbled yesterday after the collapse of Lehman Brothers and the sale of Merrill Lynch, described by former United States Federal Reserve chief Alan Greenspan as a "once-in-a-century type of event."

    "Greenspan's remark means this is super critical," said Song Songxing, a professor at Nanjing University. "China's market can't escape a tumble."

    The domestic market was closed yesterday for the Mid-Autumn Festival. Financial stocks such as Bank of China, which has a major exposure to the US subprime mortgage crisis, and those of export-oriented manufacturers would be the most affected in the face of the credit crunch.

    But Song said part of the worsening credit crisis has already been factored into financial stocks which had fallen last week, so the downside in the sector may be somewhat limited.

    "China's market is sort of independent (of others)," he said. "Over the longer term, Shanghai may even outperform other markets following the Wall Street shake-up."

    The Shanghai Composite Index hit a 21-month closing low last Thursday. Over last week, it fell 5.57 percent to 2,079.67, amid concerns over slowing economic growth.

    The decline also came as the stock market regulator approved an initial public offering proposal by Merchants Securities Co on September 8, which further raised concerns that a fresh share supply would hurt the market. Many analysts said the index may rebound after bottoming at the key 2,000 points, while some said it would fall below that level this week.

    "Overall, market sentiment was weak. We saw some capital flowing to the rising bond market recently from the equity market," said Shanghai Securities analyst Yang Ming.

    But with the index now two-thirds off its high in October last year, analysts said valuations in A-shares have fallen to a relatively low level, which could limit further declines.

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