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More consolidation expected in upcoming trading week

By Wang Jiamei  (Global Times)

08:21, May 28, 2012

China's languishing real economy may continue to keep the mainland stock markets in check, while the Shanghai exchange will likely see its tolerance of the 2,300-point mark put to the test this week, analysts said.

The Shanghai Composite Index ended trading at 2,333.55 points last week, down 0.47 percent week-on-week; while the Shenzhen Component Index closed at 9,893.77 points, down 0.18 percent compared with the previous week.

The mainland stock markets closed the first two days of trading on gains last week as a result of Premier Wen Jiabao's pledge to make maintaining steady economic growth a priority, but concerns over the worsening economy still sent both indices down in the following three days. In the end, the Shanghai Composite finished the week at its lowest level in six weeks Friday.

Although the government has announced various stimulus policies to boost consumption and infrastructure construction over the past weeks, thin trading volumes throughout the week showed that investor confidence failed to recover as economic data released so far this month mostly pointed to the deterioration of the domestic economy into the second quarter.

The latest key data, the preliminary HSBC China Manufacturing Purchasing Managers Index, fell to 48.7 in May, down from a final reading of 49.3 in April, marking the seventh straight month the index has indicated manufacturing contraction.

Meanwhile, China's big four State-owned banks - Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and Bank of China - extended only 34 billion yuan ($5.36 billion) in new loans during the first 20 days of this month, which means the new bank loans in May will likely be lower compared with the previous month, according to a Securities Daily report.

If China's credit demand continues to show downward momentum, then the real economy won't bottom out in the short term, Gui Haoming, chief analyst at Shenyin & Wanguo Securities, said in a note.

As investors generally displayed cautiousness amid the slowing economic growth, the trading volume of both the Shanghai and Shenzhen markets shrank 5.51 percent week-on-week to 692.37 billion yuan last week. Meanwhile, around 11.96 billion yuan worth of capital fled the A-share market during the same period. Only the property, construction materials, engineering construction and insurance sectors received capital inflows; while brewing, food and medical companies recorded the most capital outflows.

In the coming week, worries about the cooling real economy may linger over the mainland stock markets, which are expected to consolidate further, analysts warned.

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