Stocks plunge 3.5% on A, H share merger speculation
Updated: 2007-10-18 16:05
In contrast with the sluggish performance of the A-share market today, Hong Kong's Hang Seng Index rocketed 700 points in the morning.
However, most analysts believed the markets have been "over-reacting". Merrill Lynch believed the price gaps are not going to vanish any time soon, as the government has no urgent need to rip them off. The A, H share convergence may stimulate capital outflow and release pressure for renminbi appreciation. But the risks include the chances of domestic investors buying "over-valued" overseas equities.
In addition, it is hard for SAFE, the foreign exchange regular, to make hasty decisions now as the H share values, which are also A shares in the domestic bourses, have in total exceeded US$620 billion, analysts with the global investment bank said.
Also, diminishing price gaps will weaken the position of Hong Kong as a global financial center as the trading volume of the Hong Kong stock market may decrease. Merrill Lynch analysts said there is no sign of the mainland authorities preparing for such an exchange platform and CSRC is actively preparing for the return of H shares to the mainland market. The convergence is not going to occur soon, they believed.
Latest developments that might have also affected today's stock market include the denial of the State-owned enterprises (SOEs) price listing plan and a high consumer price index (CPI) growth for the first nine months, indicating more inflationary pressure.
The State-owned Assets Supervision Administration Commission (SASAC) denied media reports that 30 central SOEs are planning overall listing on Chinese exchanges, said Jia Xiaoliang, vice director-general of SASAC enterprise reform division.
Jia confirmed that the list of 30 central SOEs in media reports is not in accord with what is expected. "The enterprises planning overall listing mentioned in the media are not those we have established," Jia said.
China's CPI grew 4.1 percent in the first nine months of this year, compared with the same period of 2006, said Chen Deming, vice chairman of the National Development and Reform Commission (NDRC) at a meeting of the 17th National Congress of the Communist Party of China on October 16.
The 4.1 percent January to September CPI growth rate is higher than the 3.9 percent for the first eight months, 3.5 percent for the first seven months, and 3.2 percent for the first six months this year. It is also much higher than the 3 percent macro-control target set by the government for the year. In August, CPI grew at a 128-month high of 6.5 percent after a 10-year record for monthly growth in July of 5.6 percent.
Regulators are likely to implement further tightening macro-control policies to address the inflation problem, curb excessive liquidity, and restrain commercial bank loans, said Bi Jingquan, another vice chairman of NDRC.
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