Weekly Review: B Shares Gains Vanish After Hitting Records

Shanghai's hard-currency B shares stumbled into the red for the first time in 11 weeks, while Shenzhen's drifted lower to end a winning streak lasted for two straight weeks.

According to Homeway, China's leading online financial and securities advisory company, the Shanghai B-share Index, tracking U.S. dollar-denominated B shares, fell 9.88 points or 5.30 percent in the week to end at a 10-day low of 176.60 points. The barometer traded between a low of 174.20 points and a record high of 194.43 in a volatile week.

Shenzhen's H.K. dollar-denominated B-share Index shed 5.73 points or 1.54 percent in the past five days to finish at 367.26 points. It once rose to a record high of 392.95 points, but also touched as low as 359.25 points.

Trading volume was 1.79 billion U.S. dollars in Shanghai this week, which was some 93 percent of the total of 1.92 billion U.S. dollars last week, and 11.13 billion HK dollars in Shenzhen, about 1.16 times last week's total of 9.59 billion HK dollars.

Both markets failed to plow ahead though they hit their highest levels ever, hurt by the government's campaign to delist chronic loss-makers, to crack down on stock price manipulation and to reduce holdings in Chinese listed companies.

Shanghai Narcissus Electric Appliances Co., Ltd. (600625.SS, 900931.SS), a washing machine maker that hasn't made a profit in three years and showed little prospects for recovery, became the first casualty of delsiting. The company, which has 17.5 million renminbi-denominated Class A shares and 110 million U.S. dollar- denominated Class B shares, will cease trading immediately, the China Securities Regulatory Commission ordered in a statement. Its application for a six-month grace period was rejected. Narcissus and seven companies with three consecutive years of losses already had been relegated to a punitive category of trading that allowed shares to be bought and sold only on Fridays.

This week, the CSRC fined four Guangdong investment consulting firms total 449 million yuan on charges they manipulated shares of Guangdong Yorkpoint Science & Technology Co., Ltd. (0008.SZ), for illegal gain. It will also seize 449 million yuan in illegal profits. The move weighed on the market heavily as it does show greater regulatory resolve in cracking down on stock price rigging. China's B-share markets slid on speculation the government was about to start share sales.

The government's plans to reduce its holdings aren't tied to any timetable, said Anthony Neoh, a senior adviser to the CSRC. The sale of state-owned shares is a lengthy process and the government needs to find suitable buyers, Neoh said.

China finance minister Xiang Huaicheng later said plans for selling state-owned stocks will be disclosed soon. Xiang called selling state shares important way to fund social security but added sales won't be large in volume.

The government owns about 70 percent of listed Chinese companies. Any sell-off is expected to overwhelm investors and possibly drive prices down.

There continued to be a downside bias in the market. Also the market was still working off some of last month's massive gains. Especially Shanghai B stocks saw big adjustments to the downside. In April, Shanghai's benchmark index has risen 12.57 percent, while Shenzhen's has climbed up 9.17 percent. Profit-taking in Shanghai seemed set in, with earnings profile under the spotlight.

Currently, the average P/E ratio among Shanghai B shares was 41 times, compared with 52 times in Shanghai A shares. A 20 percent gap between A and B shares is considered quite natural. Looking head, Shanghai B-share market will continue a correction trend for a couple of days. For Shenzhen B shares, they have an average P/E ratio of 30 times, which was only some 58 percent of A share counterparts. This relatively larger gap is set to limit the downside potential of Shenzhen B shares.

China's stock market is closed through April 28 to May 7. The pullbacks for both markets were normal and modest, and the momentum may continue to be to the upside for the indexes, but not to excessive levels, after investors come back. It is expected to see minor bounces, and continued leadership in profitable companies.






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