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Stocks plunge 5% to hit a new low

By Jin Jing (China Daily)
Updated: 2008-08-19 09:48

An investor monitors price changes at a securities house in Fuzhou, Fujian province. The Shanghai Composite Index dropped 5.33 percent to close at 2319.87 yesterday. [China Daily]

 The mainland stock market plunged 5.33 percent yesterday to close at the lowest since December 15, 2006, as investors worried the slowing down of China's economic growth may further hurt corporate earnings.

The benchmark Shanghai Composite Index dived 130.74 points to close at 2319.87, with 876 out of 912 stocks closing lower. The Shenzhen Component Index tumbled 4.86 percent, or 400.32 points, to close at 7833.09.

The turnover on the two bourses amounted to 50.22 billion yuan ($7.3 billion), up 20.5 percent from last Friday. The total capitalization thus shrunk 860 billion yuan to 15 trillion yuan.

The foreign-currency-denominated B-share index slid 7.53 percent to close at 151.36, as investors worried about the foreign capital outflow from China.

"The macroeconomic data announced last week has shown the downward trend of China's economic growth, and corporate earnings are also expected to decline," said Zhu Haibin, an analyst at Essence Securities.

The net profit of a total of 707 listed companies that reported earnings on both Shanghai and Shenzhen bourses amounted to 99.1 billion yuan, up only 25.7 percent from the same period last year, according to statistics from TX Investment and Consulting Co Ltd.

Large banks and financial institutions, including China Merchants Bank, China Life and Bank of China, will report their half-year earnings from today. Analysts said the results may be worse than expected as the banks' one to three years lending rate slid from 11.99 percent to 8.41 percent in June.

"The continuing slide of the stock market is unreasonable, and the 2200 points is a relatively low level compared with corporate real value," said Zhu. The average price-earnings ratio of A-share companies has fallen to 15.55.

But Wu Feng, an analyst at TX Investment and Consulting Co Ltd said: "The market is expected to continue to be lackluster until the second half of next year."

In addition, yesterday's debut of China South Locomotive and Rolling Stock Co attracted 6.6 billion yuan, which diverted capital from other stocks.

"China's economy is suffering from unstable global factors, increasing challenges and hardships," said Xav Feng, China head of research at Lipper.

"China's top priorities for macroeconomic control in the second half are maintaining stable but rapid economic growth and controlling inflation. This is proof that the government has become more cautious on macroeconomic controls, and monetary policy won't be so tight in the future," he added.