China banks' fund-raising causes concerns in stock market

15:33, July 05, 2010      

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The performance of China's A-share market was the worst among capital markets worldwide during the first half of 2010, partly because the country's largest banks underwent refinancing.

Bank of China's recent huge share sale will make the market even more sensitive, predicted analysts.

Bank of China announced on July 2 that it will raise up to 60 billion yuan from a rights issue in Shanghai and Hong Kong, about one month after the bank raised 40 billion yuan by selling bonds convertible into its Shanghai-traded shares.

According to the announcement, Bank of China's move is aimed at strengthening its capital base and increasing its capital adequacy ratio. The bank plans to issue up to 1.1 rights shares for every 10 existing Shanghai-listed A and Hong Kong-listed H shares, and the two classes of shares will adopt the same allotment ratio.

The Shanghai Composite Index fell below 2,300 points on July 2, and investors became very concerned about the future of the A-share market. However, the index rebounded at the end of the day thanks to capital flowing into the sectors including real estate, banking and insurance.

"If the Industrial and Commercial Bank of China (ICBC), Bank of China and China Construction Bank implement their refinancing plans in the second half of 2010, this year's A-share market will definitely remain bearish," a stock investor surnamed Wu said.

In fact, China Construction Bank recently came up with a plan to issue up to 75 billion yuan of A and H shares approved at its general meeting of shareholders on June 24. Moreover, ICBC announced on May 18 that it will raise up to 25 billion yuan by selling bonds convertible into its A shares when the market environment improves, but its succeeding refinance program and the total sum have not been set yet. It is estimated that ICBC may also raise fresh funds by issuing both A and H shares.

Optimists predict that the A-share market will probably not suffer from a fund shortage in June, given renewed RMB exchange rate reform. Meanwhile, the growing expectations of RMB appreciation will bring more capital into the stock market and thus reduce liquidity pressure. In this way, it is highly possible to see a bullish A-share market in July.

By People's Daily Online


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