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Mainland stocks look to extend last week’s slump

By Wang Jiamei  (Global Times)

08:16, May 21, 2012

Although regulators have announced a raft of upbeat policy moves to show their support for the A-share market this month, the Chinese mainland stock markets may experience further consolidation this week in the absence of signs of improvement in the real domestic economy, analysts said.

The benchmark Shanghai Composite Index ended trading at 2,344.52 points last week, down 2.11 percent week-on-week; while the Shenzhen Component Index closed at 9,903.09 points, down 3.02 percent compared with the previous week.

The Shanghai Composite underwent four days of losses last week, falling for the second consecutive week to finish trading at the lowest level in a month.

The long-awaited cut in the reserve requirement ratio (RRR) did little to bolster the A-share market, which was mainly dominated by pessimism concerning the cooling domestic economy and continued slumps in the overseas financial markets.

A sequence of economic data released in the first half of May all pointed to a weakening economy. For instance, the country's industrial output grew by 9.3 percent year-on-year in April, the slowest pace since May 2009, according to the National Bureau of Statistics.

"Naturally, the stock market will be weak in the midst of an economic downturn, because investors are generally pessimistic when the real economy casts a shadow on companies' performances," Gui Haoming, chief analyst at Shenyin & Wanguo Securities, said in a note.

Meanwhile, mainland bourses were also dragged down by world stock markets, which declined throughout the past week due to the escalating risk of Greece's exit from the eurozone. The Dow Jones industrial average dropped 3.52 percent for the week, the biggest weekly drop in nearly six month.

As market sentiment turned bearish, the weekly trading volume of both the Shanghai and Shenzhen markets shrank 15.24 percent week-on-week to 732.71 billion yuan ($115.79 billion) last week.

Moreover, 12.8 billion yuan worth of capital fled the domestic market during the same period.

The nonferrous, chemical fiber and machinery sectors each recorded more than 1 billion yuan in outflow; while the securities sector received the most capital following news that 25 securities companies will participate in a trial leverage trading scheme this week, which will allow them to provide services supporting investors' margin trading and short selling activities.

Regarding the coming week, most analysts are cautiously expecting the market to consolidate further within the 2,300 point and 2,400 point range, and recommend investors stand aside from trading for the time being.

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