Stocks post biggest jump in 3 months
Mainland stocks posted their biggest single-day jump in three months yesterday, buoyed by Premier Wen Jiabao's support for the struggling market.
But analysts said the rally would prove short-lived, dragged down by worsening fundamentals.
The Shanghai Composite Index climbed 62.5 points, or 2.89 per cent, to 2,225.89 yesterday, the largest rise in a day since October 12, when it surged 3.04 per cent.
Investors took their cue from Wen's remarks over the weekend that the central government would protect investors and boost confidence by deepening reforms on share offerings while urging listed companies to introduce cash dividend payouts.
Although Wen's statement did not include any specific measures to underpin the market, investors believed Beijing would roll out incentives in the near future to encourage buying of equities.
'The rebound was a result of heightened expectations of boosting measures,' said Shenyin Wanguo Securities analyst Qian Qimin.
'But it remains to be seen whether any substantial policy will materialise in the short term to attract more bullish investors.'
The benchmark gauge has been among the world's worst-performing in the past two years, slumping 14.3 per cent in 2010 before sinking 21.7 per cent last year.
On the mainland, the direction of government policy is regarded as important to investor sentiment. As millions of retail investors have bet on volatile stocks with their savings, leaders are keen to arrest a decline in the market to avoid social discord.
Beijing has in the past cut stock trading taxes or ordered state-controlled investment firms such as Central Huijin Investment to buy shares to shore up investor confidence.
But those kinds of measures are unlikely to be enough to bolster the current market, given corporate earnings growth looks set to decline.
Chen Li, UBS Securities' head of China equity research, said yesterday mainland-listed firms would report 11.6 per cent year-on-year profit growth this year, much less than the 21 per cent local brokerages predict.
'Our forecast of earnings growth is pessimistic, because an economic downturn will definitely hurt corporate performance,' Chen said.
'If domestic demand is sluggish, the companies' facilities won't be fully utilised to ensure a satisfactory profit margin.'
Mainland-listed firms have yet to publish earnings reports for 2011.
In the third quarter of last year, they reported a quarter-on-quarter profit slide for the first time since September 2008, when the economy took a hammering from the global financial crisis.
The 2,300 firms said they earned a combined 477.4 billion yuan (HK$587 billion) from July to September, down 6.1 per cent from the previous quarter. in 2010.
Analysts said the benchmark would soon meet technical resistance at the 2,250-point level.