Shanghai stocks hit lowest in 9 months

Expected stamp duty cut fails to materialise

Mainland stocks fell to their lowest level in almost nine months yesterday after investor expectations the government would cut stamp duty during the weekend were dashed.

The Shanghai Composite Index dropped 170.388 points or 4.49 per cent to 3,626.188, its lowest close since July 5 last year and the biggest one-day dive in two months.

The more pessimistic analysts are predicting the benchmark will fall below the 3,000-point level sooner than later as concerns about slowing earnings growth and rising interest rates take their toll on sentiment.

Trading is expected to be brighter in Hong Kong, which reopens today after the Easter break. The Hang Seng Index could climb as high as 23,000 points after a pull-back in runaway commodity prices boosted confidence the global economy can withstand a slowdown.

The Shanghai index is now 40.48 per cent off a peak set in October last year as the world's fastest-growing major economy hits the twin headwinds of slowing growth and accelerating inflation.

'The market is impossible,' said Yang Zongyao, an analyst at China Jianyin Investment Securities. 'The downward spiral will continue as the market lacks buying interest.'

Investors had expected Beijing to announce the long-awaited cut in stamp duty at the weekend but were disappointed yesterday as the government maintained a stony silence on the issue.

Mainland investors are increasingly losing confidence in the blue chips, the driving force behind last year's 96.66 per cent gain in the Shanghai index.

'People believe the so-called profit stars will have to be revalued completely now that the economic situation is worsening,' said Wu Kan, a fund manager at Dazhong Insurance. 'Their earnings won't be as good as expected.'

Ping An Insurance (Group) led yesterday's fall, sinking 9.81 per cent. The firm in January announced a multibillion-dollar share placement plan, a move that could flood the market with new equity. 'Investors appeared to be furious,' said Mr Yang. 'The firm's refinancing plan still weighs on the market.'

In Hong Kong, analysts said the market outlook was brighter, buoyed by falling crude oil and gold prices.

'That will be a little positive for the market because it will help reduce some inflationary pressure,' said Ben Kwong Man-bun, the chief operating officer at KGI Asia. 'So the chance of the index hovering above 22,000 points [this week] is quite high.'

Signalling that the global economy may be stabilising, prices of crude oil and gold came back down to earth after being hurt by skittish investor sentiment. Oil and gold yesterday evening in Singapore skidded to US$100.56 per barrel and US$917.90 an ounce, respectively.

Stocks were mostly up in the region. Taiwan surged 3.99 per cent, the Philippines rose 1.77 per cent, Malaysia gained 1.01 per cent and South Korea added 0.58 per cent.

Stocks also rose strongly in the United States yesterday. At midday in New York, the Dow Jones Industrial Average was up 222.57 points or 1.8 per cent, while the Nasdaq Composite Index was 68.41 points or 3.03 per cent ahead and the S&P 500 Index rose 25.46 points or 1.91 per cent.

Positive overseas sentiment could lead local investors to buy back stocks after the market on Thursday fell 3.47 per cent to 21,108.22 points before the Easter break.

Financials might rise the most as they had been oversold, said Paul Pong, the managing director of Pegasus Fund Managers. 'This is a very good time to buy because the financial sector has found the bottom,' he said.