Shanghai shares/close -- 2 (Domestic U.S. dollar deposit cut boosts B-shares)
An analyst at Xiangcai Securities said B-share liquidity was boosted by the cut in domestic U.S. dollar deposit rates and by expectations that the U.S. Federal Reserve will cut rates again on May 15. According to the Shanghai Securities News, the Bank of China cut domestic U.S. dollar deposit rates by an average of 0.4375 pct points on May 1, lowering the one-year U.S. dollar deposit rate to 3 pct from 3.5 pct. The bank cut the one-year hkd deposit rate to 3.125 pct from 3.5 pct, and lowered the one-year yen deposit rate to 0.01 pct from 0.1 pct. "The domestic rate cut on May 1 has driven a large amount of money into the B-share market and the forex market as investors seek a greater return," he said, adding that a further cut in rates in the U.S. should be followed soon afterwards by a cut in domestic foreign exchange interest rates. It is also widely expected that B-shares will see a surge in liquidity from June 1, as rule changes allow domestic individuals to use foreign currency deposited after Feb 19 to buy B-shares. He said official figures indicate that 4.83 pct of total domestic foreign currency deposits flowed into the B-share markets after the implementation of rules allowing domestic individuals to invest foreign exchange deposited before Feb 19 in B-shares, adding that he expects a further 5-10 pct of total foreign exchange deposits to flow into the market after June 1. While B-shares could undergo consolidation after sharp gains this week, B-shares should maintain an upward trend in the mid- to long-term, he said. Hong Kong-Macau Information Investment dealer Tang Jie said A-share prices were boosted by gains on the B-share market, although there were few fresh leads and turnover remained thin. Despite the gains, Tang said he sees limited upside potential in the A-share market amid widespread expectations that the government will soon announce its plan for the flotation of state shares in listed firms. The main official securities newspapers today published several commentary articles saying the negative impact of state share flotations will not be large, he said, adding that this appeared to indicate that the government is seeking to ease investor concerns ahead of the launch of the flotation plan. While the government may have structured this plan in a way which limits the negative impact of the flotations, it is unlikely that A-shares will have much scope for gains after the plan has been launched, he said. China Securities sales manager Zhang Jie said there are widespread expectations that the government will soon begin floating state shares, but investors have generally been reassured that the government will not allow the flotations to have a significant negative impact on the market. She added that concerns over the government's plans for the launch of a second board market appear to have eased amid speculation that the launch of the board will be delayed beyond the end of this year -- amid concerns over the levels of risk the new board might create -- and could even be delayed for several years. Shenyin & Wanguo Securities dealer Yan Dinggong said concerns about the flotation of state shares mainly stem from uncertainty over the flotation methods the government plans to use. "People are speculating that the state shares will be sold under contracts, or will be placed to institutions, or will be bought back by listed companies themselves, or will be placed to existing A-shareholders. "I heard that the China Securities Regulatory Commission has selected 10 listed companies in the manufacturing industry as pilot candidates to float their state shares," he said, adding that this experimental flotation may be designed to ensure that the flotations will not have a negative impact on the market. Among A-shares, Founder Yanzhong gained 1.78 yuan to 36.78 on 9 mln shares, while Shanghai ACE rose 0.06 to 13.97 on 3.7 mln shares and Xingye Housing rose 0.08 to 18.68 on 3.3 mln shares. Shanghai Erfangji rose 0.48 yuan to 11.82 on 2 mln shares. China Minsheng Bank rose 0.07 yuan to 18.69 on 2.1 mln shares. Sichuan Changhong gained 0.2 yuan to 11.35 on 1.5 mln shares. B-shares were traded higher across the board, with Jinan Qingqi rising 0.029 usd to 0.579 on 20.6 mln shares, while Erfangji rose 0.073 to 0.801 on 14.2 mln shares and Shanghai Chlor-Alkali gained 0.065 to 0.863 on 11.3 mln shares. Zhejiang Southeast Electric Power gained 0.048 usd to 0.897 on 10.4 mln shares.
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