Shanghai shares in shaky start to Year of Snake

First day's trading after break sees benchmark index drop 11 points amid fears of liquidity drain

PUBLISHED : Tuesday, 19 February, 2013, 12:00am
UPDATED : Tuesday, 19 February, 2013, 5:10am

Mainland stocks got off to a bumpy start in the Year of Snake as the market, hit by worries of a liquidity drain, edged down after a week-long break for the Lunar New Year.

The Shanghai Composite Index declined 10.84 points, or 0.45 per cent, to 2,421.56 yesterday, the first trading day since February 8.

The drop disappointed investors, who had expected a rosy debut for the new year, which began on February 10, given the mainland economy had shown signs of solid recovery and regulators were striving to restore confidence.

Investors normally pay close attention to the market's trading debut after the Lunar New Year holiday, believing a first-day gain bodes well for the rest of the year.

Analysts said the market would rebound in the coming days as the overall upward momentum would continue. Since December last year, the main gauge had risen 22.3 per cent.

Qian Qimin, an analyst at Shenyin Wanguo Securities, said: "It was just a short-term correction and the market will regain its strength to approach the 2,500-point level.

"The lacklustre start won't be enough to reverse the upward trend."

Worries about a massive sale of formerly non-tradable shares in companies that become free-floating this week dragged the market down yesterday, analysts said.

Shares worth nearly 100 billion yuan (HK$124 billion) are unlocked this week, and are likely to soak up funds from the market.

Major shareholders on the mainland are subject to a lock-in period after the companies start trading on the Shanghai and Shenzhen stock exchanges.

In the past years, the market would normally drop if a large number of formerly non-tradable shares became free-floating because of fears of heavy sell-downs of their stakes by the controlling shareholders.

The China Securities Regulatory Commission has suspended approval for initial public offerings since October to bolster investor confidence.

Investors are also pinning hopes on the National People's Congress next month, betting that the new government will roll out strong economic sweeteners to sustain the recovery while underpinning the stock market.

Financial stocks, including banks, led the decline yesterday but analysts said the fall was a result of profit taking rather than worsening fundamentals.

The mainland market fell sharply in 2010 and 2011, becoming one of the world's worst-performing in those two years. The benchmark rebounded 3.2 per cent last year, but it remained one of the worst-performing markets globally.