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Chinese stocks plunge to 8-year low
on float fears
BEIJING -
Chinese stocks plunged to a more than eight-year
low yesterday, as fear of expected State share
selling further eroded already weak investment
sentiment in the bourses. The benchmark Shanghai
composite index fell 2.03% to close at 1,039.187
yesterday, in spite of a mild rebound on Monday
and Tuesday. It was the lowest close since the
index ended at 1,025.3 on February 27, 1997.
A major reason for the fall was the
announcement by China's securities regulator that
the experimental sales of state-held shares would
be expanded to more listed companies, analysts
said. Moreover, buying sentiment remains weak and
investors are likely to continue to take the
sidelines unless fresh stimuli, like the entry of
market stabilizing funds, are introduced, said
Wang Xiaomin, a Shanghai-based analyst at Xiangcai
Securities.
The China Securities
Regulatory Commission (CSRC) announced on Tuesday
it would soon urge a second batch of companies to
join the pilot experiment to sell and circulate a
portion of their State and legal-person shares
which are still not traded on the market. Four
small and medium-sized A-share companies, the
first pilots for the experiment, revealed their
plans for the nontradable-share-flotation a month
ago, offering public investors some compensation
to make up for their potential losses when the
nontradable shares are floated. But the plans are
still to be approved by the general shareholders'
meeting of the firms. The latest report by CITIC
Securities said the compensation offered is not
sufficient, which triggered the latest round of
falls in the bourses.
As a legacy of the
planned economy model formerly used by China,
around two-thirds of all shares in domestic-listed
firms are still not open for trade, hindering
market liquidity, efficiency and transparency. But
the authorities are now firm about solving the
problem. "Regulators seem to be determined to go
ahead with the nontradable share sale, regardless
of the near-term market movements, but they should
pay attention to the capacity of the bourses and
come up with parallel reforms to increase fund
supply and repair investment confidence," said
Wang.
CSRC has set no restrictions on
scale, industry and equity structure on the second
batch of listed companies to undertake the State
share sale, only saying they will have "broad
representativeness." But insiders said more large
companies should be picked this time, based on a
circular jointly issued by CSRC and the
State-owned Assets Supervision and Administration
Commission on Monday, which encourages large and
medium-sized listed companies to take part in the
experiment. Their participation, the circular
said, should give investors more stable
expectations for the reform and should set a
positive example for other listed firms.
Geng Liang, chairman of the Shanghai Stock
Exchange, also said yesterday that the exchange
hopes more high-quality listed companies,
especially larger State-controlled companies, can
join the pilot scheme to sell and circulate the
nontradable shares. The exchange plans to create a
separate index for nontradable shares that are
listed, he said at a forum held yesterday in
Shanghai.
(Asia
Pulse/XIC) |
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