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Policy absence drags down stock market

(Agencies)
Updated: 2008-03-31 14:34

China's main stock index, which surged 4.94 percent on Friday because of rumours that authorities would act over the weekend to support the market, sank on Monday after no official action materialized.

The benchmark Shanghai Composite Index fell as much as 3.74 percent in early trade before ending the morning 2.30 percent lower at 3,497.656 points, led by banking and property stocks. That left the index 43 percent lower than its October peak.

Losing stocks in Shanghai outnumbered gainers by 771 to 122, while turnover in Shanghai A shares was very thin at 37.2 billion yuan ($5.3 billion) against Friday morning's 40.9 billion yuan.

"A lot of money was betting on government policies, but disappointingly, they didn't materialise," said Gao Lingzhi, strategist at Great Wall Securities Co.

Gao said recent falls had made many stocks attractive for long-term institutional investors, and CITIC Securities said in a strategy report on Monday that panic selling of A shares might have made Chinese stocks attractive for foreigners.

China's 300 biggest stocks now trade at about 19.5 times forecast earnings in 2008, so buying them at current prices may provide 20 percent gains by the end of this year, CITIC argued, adding that overseas investors could reap an additional 5.2 percent gain from expected yuan appreciation.

The fact that the index did not close last week below 3,404 points, its June 2007 low, suggested to some traders that level might be technical support.

But investor confidence has been so badly shaken by the market's slide in March that many analysts think any extended recovery is unlikely without official support, such as a trading tax cut.

In its report, CITIC said the government had not given the market "appropriate guidance", and called on regulators to release market-friendly policies as soon as possible.

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