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Stock Market Fever Peters out as Profit-taking Emerges
China stocks rose on Wednesday as the government's suspension of a scheme to sell more State shares continued to cheer investors.
But the market rally started to peter out as punters began taking profits after the index soared by nearly 10 per cent on Tuesday, a sign that the impact of what was seen as an effort to shore up slumping markets may be short lived.
The Shanghai B-share index ended up 0.39 per cent at 158.763 points after opening 3.28 per cent higher. The Shenzhen index surged nearly 4 per cent early on before sliding back to finish up only 0.43 per cent at 257.00.
Domestic A shares, off limits to foreign investors, ended up about 3 per cent after hitting intraday highs of more than 4 per cent.
China shares roared up their 10 per cent limit on Tuesday after the China Securities Regulatory Commission (CSRC) suspended a scheme requiring Chinese companies to sell State-owned shares along with IPOs and new share issues.
"The markets were still largely in a cheerful mood this morning after yesterday's policy announcement," said an analyst at United Securities, "but the fever seems to be fading and profit-taking has emerged."
The money from the sales of State shares, which make up two thirds of market capitalization, had been earmarked for China's badly stretched pension and welfare systems.
Investors feared massive sales of shares worth billions of dollars would swamp the markets, and indices had shed about 30 per cent since the policy took effect in July.
But analysts said the selldown was likely to resume in a few months, perhaps with a few amendments, as China lacked other means of raising money to help pensioners and the jobless already suffering from other wrenching State sector reforms.
"They're just delaying addressing the long-term problem," said Philip Chan, head of China research at Shenyin & Wanguo Securities (HK). "This is a short-term boost to market sentiment."
Analysts said the selldown method was not necessarily the problem, only the timing of it.
They said the CSRC should have slowed the process when it revisited the issue, or have studied other methods, such as Hong Kong's Tracker Fund, a unit trust of blue-chip stocks established to dispose of the Hong Kong government's share portfolio.
Meanwhile, investors shrugged off reports that regulators had delisted money-losing conglomerate Shenzhen Zhonghao (Group) Co, the third firm to be kicked off China's decade-old exchanges.
Among the top two gainers in the B-share markets yesterday morning were loss-making companies, classified as Special Treatment (ST) after being in the red for at least two years, indicating no negative fallout from the Zhonghao delisting.
Analysts said the market had expected the delisting after Zhonghao racked up four-and-a-half years of losses, and the CSRC rejected its appeals for more time to return to profit.
ST Shanghai Automation Instrumentation Co topped the Shanghai B chart with a 5.01 per cent rise to US$0.608. The industrial equipment maker reported a small interim profit in July, reversing two years of losses.
In second place was ST China Textile Machinery Stock Co with a 4.96 per cent gain to US$0.614. It had also posted a small profit for the first half of the year.
Shenzhen Textile topped the Shenzhen B-shares market with a 5.37 per cent increase to HK$8.24 (US$1.05), while China Bicycles followed it with a 5.08 per cent rise to HK$3.72 (US$0.48).
The Shanghai composite index rose 47 points to 1718.06, while the trading volume ended at 24.76 billion yuan (US$3 billion).
The Shenzhen sub-index jumped 84.59 points to 3542.61, with a turnover of 14.66 billion yuan (US$1.77 billion).
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