Shanghai shares/close -- 2 (A-share outlook weak: analyst)

Shenyin and Wanguo Securities analyst Yan Dinggong said he believes the A-share gains, which drove the composite index further above the key psychological resistance level of 2,000 points, were largely the result of institutional support. He said institutions which have been unable to take profits on positions built last year are now seeking to drive prices higher in the hope of creating opportunities for quick profit-taking, while the longer-term outlook for A-shares appears negative. "In general terms, the market mood is not very good. Most recent comments from officials have pointed to underlying risks," he said. He said Premier Zhu Rongji recently indicated that the growth target for this year will be 7 pct, slower than last year's GDP growth of 8.1 pct. Other comments from officials during the current meeting of the National People's Congress have also pointed to uncertainties about the outlook for growth in GDP, exports, consumption and non-state fixed-asset investment, he said. In addition, China Securities Regulatory Commission chief advisor Anthony Neoh recently warned that opening the B-share market to domestic individuals had increased B-share market risk. CSRC chairman Zhou Xiaochuan was also reported recently as saying that there will be no merger of A-share and B-share markets in the coming 5-10 years. All of these comments point to heightened market risk, Yan said, adding that "now is not the right time for people to invest in A-shares." He added that despite the heightened risk of investing in B-shares, domestic individuals continues to rush to buy the shares. Yan cautioned that the small capitalisation of the B-share market makes it easy for institutions to manipulate prices. Although rules governing the A-share market ban investors from buying and selling the same stock in a single day, there is no such restriction in the B-share market, he said, adding that this makes it easier for institutions to cross-trade B-shares. "There's a lot of cross-trading, so the turnover isn't very accurate. High turnover doesn't necessarily mean the market is still hot," he said. Yan added that many B-shares are already overpriced, particularly given the weak earning capacity of many B-share firms. Qinghai Securities analyst Chen Zijian said an institution-driven rebound of high-tech and network-related shares boosted A-shares as a whole. The gains were partly triggered by news of Searainbow's deal with a subsidiary of Walt Disney, and of Lycos Asia's acquisition of MyRice.com. Chen said the high-tech and network-related sectors have corrected since March last year, and reported remarks from Minister of Science & Technology Xu Guanhua that the government will offer favourable policies to develop domestic high-tech firms may also have served as a pretext for the institution-led buying today. However, Chen said domestic high-tech shares generally have small capitalisations, and buying of these stocks will not support broad-based A-share gains over the longer term, he said. He added that domestic B-share buyers appear to be undaunted by concerns that a bubble risk may be developing in the market. On its first day of trading, Inner Mongolia Baotou Steel Union closed at 6.4 yuan, up 1.22 from its issue price of 5.18, on volume of 184.8 mln shares. Among high-tech and network-related stocks, Jiangsu Zongyi rose 2.03 yuan to 22.36 on 6.8 mln shares, while Shanghai Maling gained 1.13 to 15 on 5.7 mln shares and Shanghai Orient Pearl rose 0.72 to 26.82 on 4.3 mln shares. Minsheng Bank eased 0.11 to 17.6 on 5.2 mln shares, while Pudong Development Bank rose 0.03 to 20.93 on 2.5 mln shares. Among B shares, Zhejiang Southeast Electric Power rose 0.06 usd to 0.735 on 43.5 mln shares, while Worldbest Kama gained 0.046 to 0.506 on 27.3 mln shares and Shanghai Linyun Zhengsheng rose 0.075 to 0.823 on 27.7 mln shares. Huangshi Dongbei rose 0.057 to 0.624 on 20.5 mln shares.

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