Shanghai shares close off lows after heavy losses on institutional sales

SHANGHAI (AFX-ASIA) - A-share prices closed lower, but off their lows, on a technical correction and strong institutional selling pressure, dealers said.

B-share prices were down but off sharp lows reached during a burst of institutional selling just before the close of the first session, they said, adding that the sales may have been designed to create opportunities for the institutions to build positions at lower prices.

The A-share index dropped 13.24 points or 0.57 pct to 2,287.55 on turnover of 13.23 bln yuan after trading between 2,303.17 and 2,265.56.

The B-share index closed 1.37 points or 0.62 pct lower at 219.53 after trading between 224.85 and 212.31.

The composite A- and B-share index closed 12.75 points or 0.57 pct lower at 2,197.59 on turnover of 18.28 bln yuan after trading to a high of 2,213.40 and a low of 2,175.28.

The SSE-30 index shed 3.21 points to 3,980.52.

Some analysts said institutions were trimming positions on concerns that the market will register a negative response to the expected launch of the government's plan for the flotation of state shares in listed firms.

Others said the institutions may have been seeking to drive prices lower in the hope of triggering retail selling following news that the China Securities Regulatory Commission has issued rules requiring securities 

companies to separate customers' share trading deposits from their own funds from the beginning of next year.

Securities firms currently use some of their customers' share trading deposits to make proprietary investments.

One dealer at a foreign securities firm said the news of the CSRC rules may have been the key cause for the B-shares' sudden and sharp declines late in the first session and early in the second.

He said, however, that the new rules are unlikely to have a significant impact on A- or B-share market liquidity but may have provided institutions with a pretext for driving share prices lower.

He added that institutions are generally aware of policy initiatives several weeks before they are announced in official securities newspapers and the publication of these rules is unlikely to have had a genuine impact on institutional investor sentiment.

Shenyin & Wanguo Securities analyst Yan Dinggong estimated that the total value of individual investors' share trading deposits held by securities companies may amount to 200-300 bln yuan.

A report in the Guangzhou Daily said securities companies were making proprietary use of 2.3 pct of these share trading deposits at end-2000, down from 10.1 pct at the beginning of last year.

Yan said he believes securities companies are still making substantial use of investors' share trading deposits, adding that the figures quoted in the Guangzhou Daily appeared to be too low.

Related stock : (NIL)