Mainland stocks gain 9.6pc in week

PUBLISHED : Saturday, 07 February, 2009, 12:00am
UPDATED : Saturday, 07 February, 2009, 12:00am

Analysts warn of sharp retreat ahead with major funds expected to lock in profits

Mainland stocks rose yesterday with the key index recording a weekly gain of 9.6 per cent as more investors decided to chase a rally sparked by the government's stimulus packages.

However, analysts warned a sharp fall could occur if big funds lock up their gains soon.

The Shanghai Composite Index climbed 83.221 points or 3.97 per cent yesterday to 2,181.239, the highest close since October 6 last year. The gauge's advance this week was the biggest since the middle of November.

'The rally resulted from an increasing influx of funds but the strength won't be sustained too long since most of the funds will exit in the coming days,' said Shanghai-based Fullgoal Fund Management fund manager Chen Ge. 'The mounting buying interest actually has nothing to do with fundamentals.'

Combined turnover on the Shanghai and Shenzhen stock exchanges reached 186 billion yuan (HK$211.02 billion) yesterday, double Monday's level when the market reopened after the week-long Lunar New Year holiday.

Investors flocked to the beneficiaries of government aid such as textile companies and carmakers this week, believing the stimulus packages will pay off earlier than expected.

The Shanghai index broke through the significant 2,000-point threshold on Monday, fuelling follow-up buying in subsequent sessions.

As Beijing loosened monetary policies this year, an increasing quantity of funds flowed into the stock market, betting on a rebound after last year's 65.39 per cent decline.

'The government plan to revive key industries provided a catalyst for the rally,' said Shenyin Wanguo Securities analyst Wei Daoke. 'It won't be a surprise to see a profit-taking correction.'

Most economists have predicted that the mainland economy will not recover until the second quarter of this year when the massive investment expansion plan takes effect.

But Beijing's rescue measures to support backbone sectors such as textiles and machinery this week boosted investor confidence with many of them believing an early recovery is on the way.

The market rose over the first three days of the week but dropped 0.46 per cent on Thursday.

Shenyin Wanguo Securities forecast that the key indicator would meet technical resistance at 2,333 points.

'A fall is in sight next week,' said Dazhong Insurance fund manager Wu Kan. 'Many investors who bought shares in the past two days will rue their losses soon.'

Analysts said the fundamental problem had not been solved since most listed companies are expected to report a profit decline for last year.

The market was rife with speculation that the China Securities Regulatory Commission would soon start approving initial public offerings after a five-month hiatus. The CSRC denied this immediately.

The mainland market is still grappling with the thorny issue of sell-downs of formerly non-tradable shares this year.

A total of 687.2 billion shares worth almost 4 trillion yuan held by state-controlled companies or key shareholders will become free-floating this year, according to Shanghai-based financial data provider Wind Information.

In Hong Kong, the Hang Seng Index jumped 476.14 points or 3.61 per cent to 13,655.04 as investors took heart from news that the United States will unveil a plan to combat the financial crisis.