Shanghai A-shares close slightly lower; B-shares sharply higher

SHANGHAI (AFX-ASIA) - A-share prices closed marginally lower in a slight technical correction, although sentiment remained generally firm amid hopes that the expected launch of open-ended securities funds will further boost liquidity, dealers said.

	    Selling pressure also remained weak since most share prices have been flat for several months despite steady index gains and few investors are interested in selling their until they have the leeway to take profits, they said.

	    B-share prices closed up sharply at another record high and marginally above a key psychological resistance level at 220 points.

	    B-share selling pressure was weak amid expectations of a surge in B-share buying from June 1, when domestic individuals gain the right to use foreign currency deposited after Feb 19 to invest in B-shares.

	    Although B-share prices are already well above levels justified by corporate fundamentals, domestic investors generally remain confident in the market's growth potential since there has so far been nothing to suggest that the government might take steps to limit B-shares' upward momentum, they said.

	    The A-share index dropped 4.89 points or 0.21 pct to 2,300.79 on turnover of 11.98 bln yuan after trading between 2,310.30 and 2,296.30.

	    The B-share index closed 5.02 points or 2.32 pct higher at 220.90 after trading between 220.94 and 215.70.

	    The composite A- and B-share index closed 3.25 points or 0.14 pct lower at 2,210.34 on turnover of 15.24 bln yuan after trading to a high of 2,218.45 and a low of 2,205.25.

	    The SSE-30 index dropped 18.17 points to 3,983.73.

	    Hong Kong-Macau Information Investment dealer Tang Jie said A-shares appeared to be undergoing a slight technical correction following recent gradual gains.

	    However, with sentiment remaining generally firm and liquidity strong, the composite index seems unlikely to drop below 2,200 points, he said, adding that there are widespread expectations of a further boost to liquidity once the government allows the launch of open-ended securities funds and eases restrictions on the investment of insurance funds in the stock market.

	    At the same time, investors no longer seem concerned that the expected launch of a policy of floating state shares in listed firms will have a significant negative impact on share prices or liquidity, he said.

	    "So there's no real reason for investors to withdraw their money from the market at this stage and there's little space for share prices to drop," he said.

	    Tang said B-share sentiment remains strong amid hopes of a surge in buying from June 1, adding that he expects B-shares to trend higher even as existing B-share holders take profits next month.

	    "The supply of B-shares is still going to be smaller than demand, mainly because the expansion of the B-share market hasn't begun yet," he said.

	    Despite the B-shares' sharp gains over recent months, most companies with dual A- and B-share listings still prefer to raise funds via the A-share market, meaning that fund-raising via the B-share market is likely to remain light, he said.

	    One dealer at a foreign securites firm said B-share price movements in the near future will largely depend on indications of government plans for the market.

	    Any news to indicate that the government intends to curb the B-shares' upward momentum, or does not intend to focus on developing the B-share market, could cause prices to drop sharply.

	    At the same time, some major institutions are playing a major role in determining price movements and influencing turnover levels, he said.

	    He added that the prices of 90 pct of B-shares "no longer matter", since they are above levels at which there would be many normal share transactions.

	    These B-shares are only generating significant volumes because the institutions "keep selling and buying them", he said, adding that he believes it highly likely institutions will use any increase in retail buying from June 1 as an opportunity to take profits while prices are high.

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