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Macroeconomic climate may prolong market rally

By Wang Jiamei (Global Times)

08:13, May 07, 2012

Although a series of positive policy moves sent the Chinese mainland stock markets up during the first week of May, it is still too early to confirm the start of a bull market, with trading volume and the macroeconomic climate likely to become the two most important factors determining how long the rebound will last, analysts claim.

The benchmark Shanghai Composite Index ended trading at 2,452.01 points last week, up 2.32 percent week-on-week; while the Shenzhen Component Index closed at 10,573.60 points, up 1.01 percent compared with the previous week.

The Shanghai Composite started last week's trading on a big gain Wednesday, lifted by the upbeat policy moves that market regulators announced during the May Day holiday, such as guidelines on new IPO regulations, draft rules on delisting companies and lower A-share trading fees.

However, after realizing that such moves, though in favor of the long-term development of the domestic equity market, would have little imminent impact in the short term, trading sentiment faded in the following two days. The Shanghai market recorded a turnover of 102.38 billion yuan ($16.24 billion) Friday, a decrease of 17.42 percent compared to Wednesday.

Despite the policy lift, investor confidence still seemed limited. Around 3.44 billion yuan in capital fled the A-share markets last week, a considerable drop compared with the previous week's level of 15.51 billion yuan. Only the insurance, logistics, engineering construction and transportation infrastructure sectors received capital inflows, while the property development sector recorded the most capital outflow due to news report that some Shanghai-based banks have stopped offering discounts of up to 15 percent on mortgage interest rates for first-home buyers.

Regarding the coming week, previous rallies are likely to extend in the Chinese mainland stock markets on hopes of increased liquidity as the China Securities Regulatory Commission is reportedly working on plans to expand the country's Qualified Foreign Institutional Investor (QFII) program in a bid to lure more overseas investors to the Chinese securities market. Moreover, since the macroeconomic situation still appeared quite weak over the past months, speculations are also rising about the possibility of a further reserve requirement ratio (RRR) cut this month.

Nevertheless, Gui Haoming, chief analyst at Shenyin & Wanguo Securities, said in a note that investors should remain cautious as concerns still exist about listed companies' performances in the midst of the economic slowdown.

According to a survey conducted by China Business News and Tencent Finance, 39.81 percent of investors said they have started increasing stock holdings as part of their current strategy, while 22.14 percent preferred to wait and see before buying more equities.

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