Stock index plunges after turbulence
By Li Zengxin (Chinadaily.com.cn)Updated: 2007-05-11 16:00
The unease in the market did not stop steel and medicine makers from rising. Wuhan Steel and Anyang Steel saw their prices rise 3.04 percent and 2.36 percent respectively. Dongsheng Tech, Jiante Biotech and Shanghai Pharmaceutical started climbing after the mid-day break and ended nearly at the 10 percent cap.
The market plunge is widely believed to be a result of profit-grabbing by institutional investors for fear that the 4,000-point level is too high. Analysts said the index had been rising too fast. "The stock market needs a correction after rapid growth in recent days," said an analyst at Orient Securities. "The fluctuation range is expected to be as large as 600 points," he added.
A series of warning signals also led to the short-selling. In the first quarter monetary policy report issued yesterday, the People's Bank of China warned that China should prevent the economy from "growing fast" to "overheated".
"Most investors are concerned about what the central bank will do. In our view, investors should be watching the China Securities Regulatory Commission instead, as this is where the real policy initiatives are likely to come from," said Jonathan Anderson, chief economist of UBS Asia.
Some analysts hold a more optimistic view: the bull can't be stopped right
now. The China International Fund Management believes that the bubble in the
stock market, if there is, is not big enough to burst or bring serious defects
for the time being. Although the average price-to-earnings (P/E) ratio in the
A-share market, taking the 27.33 of Shanghai-Shenzhen 300 as an example, is
higher than India's 24, the world's 13.9 from 1871 to 2003 and Dow's 15 for over
100 years, Chinese economy is at a golden time of low inflation and high growth.
In such an era, the average profitability of Chinese enterprises is expected to
rise, which justifies a high P/E ratio. It is only that the companies are a
little too hasty to cash in the future earnings.
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