Shanghai shares/close -- 2 (B-share volatility hurts A-share sentiment)
Zhejiang Securities analyst Yu Lei said A-share sentiment was slightly more cautious amid signs that the B-shares are coming under heavier pressure to correct following several weeks of sustained sharp gains. Declines on overseas markets, particularly a sharp drop on the NASDAQ, capped a recent rebound in domestic hi-tech stocks, he said. But he added that A-shares are unlikely to undergo a significant correction, given that the government is implementing a number of market-boosting measures. He noted that the impending launch of a new pricing system for initial public offerings is expected to drive more liquidity from the primary market into the secondary. Meanwhile, the expected launch of open-ended funds is also expected to boost liquidity and strengthen price stability, he said. A lack of other investment opportunities is also likely to ensure that market liquidity remains strong, he said. Guotai Junan Securities analyst Zhang Jun said A-shares have traded in a narrow range since the beginning of the year, adding that this may be because institutions are more cautious of manipulating prices amid a government crackdown on trading irregularities. While A-share trade is likely to remain lacklustre, downside risk seems limited, since few investors are likely to sell their shares until they have leeway to take profits, he said. Zhang added that underlying sentiment may have been slightly weaker following yesterday's news that the China Securities Regulatory Commission has issued a rule requiring listed companies wishing to issue additional shares to achieve no less than a 6 pct average return on net assets in the three years before the share issue. Rules previously required companies to achieve a 10 pct average return on net assets before making additional share issues, he said, adding that the lowering of this limit has triggered concerns that the market will come under pressure from an increase in fund-raising activities. He also said B-share investor sentiment appears to have weakened following news that Yi Bao Construction Overseas Investment has sold a 5.6 pct B-share stake in Guangdong Expressway, and that Long Honour Investments has sold a 5 pct stake in China International Marine Containers. The news indicated that foreign strategic investors have taken the B-share market's recent strong rally as an opportunity to withdraw from the market. He added that there is large scope for profit-taking following the B-shares' huge gains over recent weeks. "I think the time has already come for a B-share correction, and this could also have a negative impact on the A-share market," he said. Shanghai Automotive gained 0.28 yuan to 13.27 on volume of 21.9 mln shares. Baoshan Iron & Steel rose 0.06 yuan to 5.7 on 14.7 mln shares, while Baotou Steel Union closed unchanged at 6.62 on 5.8 mln shares. Heilongjiang Electric Power gained 0.23 yuan to 11.07 on 8 mln shares. China Minsheng Banking rose 0.1 yuan to 18.16 on 5.8 mln shares. Among B-shares, Jiangsu Wuling Diesel Engine rose 0.027 usd to 0.6 on 21.9 mln shares. Analysts said the strong buying Jiangsu Wuling appeared to be related to reports that Wuling Automotive Corp is seeking approval to establish a mini-car manufacturing joint-venture with General Motors Corp and Shanghai Automotive Group. However, they noted that there is no direct connection between Wuling Automotive Corp and Jiangsu Wuling. Tianjin Marine gained 0.007 usd to 0.79 on 11.2 mln shares. Heilongjiang Electric Power dropped 0.014 usd to 0.86 on 12.7 mln shares, while Zhejiang Southeast Electric Power rose 0.009 usd to 0.768 on 12.9 mln shares.
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