SHANGHAI: The mainland stock market plunged a further 2.63 percent yesterday, following Wednesday's decline. The benchmark Shanghai index has now slid a total of 5.36 percent in the past two days amid investor concern about a global economic slump.
Market sentiment was further dampened by the latest government move to further tighten bank credit. The central bank announced late Wednesday that it will raise the bank reserve requirement ratio (RRR) by 0.5 of a percentage point to 15 percent, the first hike this year.
The Shanghai Composite Index fell 138.98 points to close at 5151.63, the lowest point this year. Losers outnumbered gainers by 671 to 184. The Shenzhen Component Index tumbled 2.41 percent to close at 17910.39. Turnover on the two bourses amounted to 263.55 billion yuan, up 6.5 percent from Wednesday.
In Hong Kong, the Hang Seng Index recovered in the afternoon to close at 25114.98, up 2.72 percent.
"The two continuous days of market correction was triggered by the weak performance of the US stock market. A higher bank reserve ratio further depressed investor sentiment," said a report from Industrial Fund Management Co Ltd, adding that what needs cautious monitoring is whether the concerns of a global economic slump is affecting the fundamentals of the domestic market.
"Higher RRR, combined with other macro tightening measures, will slow lending by the country's banks in 2008, which will result in a moderation in GDP growth," said Jing Ulrich, chairman of JPMorgan Securities' China equities.
"Mutual funds are faced with redemption pressure from individual investors after the big drop on Wednesday," said Wu Feng, an analyst at TX Investment Consulting Co Ltd.
Zhang Fan, an analyst at Changjiang Securities, said some QFII funds have been unloading Chinese stocks. "QFII fund managers are selling down their international portfolios," said Zhang.
Most companies fell in yesterday's trading, led by large-caps. PetroChina, China's largest company in total capitalization, fell 2.09 percent to 29.04 yuan, its lowest ever at close.
Banks tumbled yesterday because of the rise in the reserve ratio, analysts said. The Industrial and Commercial Bank of China fell 2.53 percent to 7.71 yuan and Bank of China dropped 1.67 percent.
"China's aggressive series of RRR hikes is unfavorable to smaller banks with weaker deposit franchises. By comparison, the bigger banks in China are relatively sheltered, owing to their stronger deposit franchises," said Ulrich.
Source:China Daily
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