Shanghai’s benchmark stock index could fall to 2,500
Economy may stabilise at a lower level but structural problems remain
The mainland stock markets have arrived at fair value after two weeks of an intense sell-off, but indices could drop further, analysts said, even though recent economic data hinted at a mild recovery.
The A-share benchmark Shanghai Composite Index closed at 2,900.97 on Friday and has plunged 18.03 per cent from its level at the end of last year, when it was at 3,539.18.
Hong Hao, chief strategist at Bocom International, said the index had “reached our fair trading value of 2,900”, but investors, both at home and abroad, were betting on another crash for better buying opportunities.
“From the intense response we have received from investors who appear to be keen to pounce on Shanghai’s great fall, the market has not reached the stage of revulsion,” Hong said. “The close parallel with the NASDAQ bubble suggests that China can indeed fall further to 2,500, after a technical reprieve.”
On the other hand, regulators have kept trying to prop up the markets and restore investors’ confidence after the abrupt installation and scrapping of a poorly designed circuit breaker triggered a stampede and accelerated market falls during the first trading week of the year.
The Shanghai and Shenzhen bourses both issued announcements late on Wednesday night saying they would closely monitor any major selling that might disturb the “normal trade order on the A-share market”, and urging major shareholders who plan to sell stocks in companies to strictly follow an earlier rule issued by the China Securities Regulatory Commission limiting such sales.
The People’s Bank of China injected hundreds of billions of yuan into the interbank market through the mid-term lending facility and seven-day reverse-repo agreements in open-market operations last week.